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OTTAWA, December 11, 2008 -- An association representing 33,000 high-tech executives is calling on the government to create an infrastructure fund of $60-billion to stimulate the economy through job-focused spending. “We have never gone through anything like this,” says John Reid, President of the Canadian Advanced Technology Alliance (CATA). “The economy has flat-lined, and my members tell me that even the high tech services sector, which is normally resistant to recession, is feeling the freeze.
“Canada needs to keep up with the example of our American neighbours, who are pushing forward an infrastructure stimulus package of $500-billion,” he advised. “CATA’s call for a $60-billion package for Canada is consistent with that level and with advice from economists such as Robert Reich, who advise that the U.S. should spend some four per cent of national product, or $600-billion, on infrastructure stimulus. In proportion, Canada should be prepared to spend $60-billion.
“Organizations such as the Group of 20 and the International Monetary Fund (IMF) are calling on countries like Canada to act now to pour new money into their economies in order to offset the global slump, and to accept huge, short-term deficits as the necessary cost. The IMF suggests that Canada's government run a deficit next year of more than $30 billion as part of a concerted international effort to prevent global economic collapse. Otherwise, it predicts, the crisis can only get worse. We think that in reality the IMF is too conservative, and we should be prepared to spend to the level of the Americans.”
“The Americans may have learned their lesson and be more willing to spend, because they underestimated the global financial crises at first. Now they -- and we -- are in much more serious trouble. If you don’t react with enough force, the crises deepens. The American bail-out has now reached $4.6-trillion -- more than the Marshall Plan, the Louisiana Purchase, the Race to the Moon, the Savings and Loan crises, the Korean War, the New Deal, the Invasion of Iraq, the Vietnam War and NASA, put together! The only government spending program that comes close to the current bail-out is World War II, at $3.6-trillion -- at a trillion less than the bail-out, World War II was a bargain. This is the level of spending we need to approach as a global community: it is war spending, in the biggest sense possible!”
While Mr. Reid confesses that he is not an economist, he is in daily touch with what the vital information and communications technology (ICT) industry is going through. “We should also keep in mind that amateurs built Noah’s Ark; professionals built the Titanic. There comes a time when Canadian professionals should acknowledge the blindingly obvious: our neighbour’s ship is sinking, and we’re tied alongside.”
Expanding on the fact that “we face extraordinary times,” Mr. Reid noted that “The U.S. economy, which is so tightly linked to our, is still in serious trouble. While we of course have confidence that it will be corrected over time, we must recognize that their financial sector is still in cardiac arrest even after the bail-out, the auto makers are in trouble, housing prices are in free-fall, the state and municipal governments urgently need bail-outs themselves, and the economy has huge unused capacity with idle factories and empty office spaces. This is the reality that Canada must face. We have to stand on our own, and create work for ourselves instead of relying totally on an American recovery. Experts such as Sherry Cooper, chief economist at BMO Capital Markets, say that wealth destruction from sell-off in stocks and corporate bonds is now every bit as bad in Canada as it is south of the border.
“We are pleased that the Finance Minister has recognized that we are in the best economic position of all the G-7 nations in having lots of leeway to act.”
Infrastructure spending: the most effective stimulus
“The problem in the U.S. and Canada is that there is not enough demand in the economy to keep it going,” says Mr. Reid. “We can devote infrastructure funds to pay our citizens to build and repair our infrastructure. Direct government spending on roads, bridges, mass transit, green technologies, information and communications technologies, and an infrastructure for the future, is the most effective way to apply a stimulus package, according to many economists such as Derek Holt from Scotia Capital. This kind of direct spending keeps money in Canada.”
Alternatives like tax cuts won’t work as effectively, he added, because they tend to be one-time shots that people use to pay off debts, rather than buy goods and services. Even when the rebates are spent on goods and services, they cannot come close to generating as many jobs as government spending on infrastructure.
Focusing on the credit problem is also the wrong approach: “It’s not about credit, it’s about confidence in spending,” stated Mr. Reid. “Many analysts are focusing on making credit more available. In fact, the economy has come to a standstill because people are afraid to spend money. They are afraid for their jobs; their future. They are in debt already. As the first and most important step in reviving the economy, we need to give the people a financial future.” Mr. Reid cited a recent poll from the Conference Board suggesting that consumer confidence had dropped to levels not seen in decades.
Big deficit now or enormous deficit later
“If we don’t spend now, we will in fact have huge budget deficits in the future, as our economy keeps running down,” added Mr. Reid. “If we do nothing, taxation will not keep up with spending, and we bleed away our future a year at a time over decades. Let’s give it a fix now, and stop the hemorrhaging.” Acknowledging that ‘fiscal hawks’ would claim that the government would be spending too much, Mr. Reid noted that “if the economy keeps shrinking, fiscal conservatism will drive us into a total tailspin. We believe that government spending will push the economy to fuller capacity and will in fact eliminate future deficits.
“We can’t save our way to a solution. If we don’t have a meaningful stimulus package of at least four percent of national product, we will be in a deficit position for generations.
“We agree with the position taken by the Canadian Council on Policy Alternatives (CCPA), that Canada should be prepared for a bold increase in operating and capital expenditures. We need to anticipate; to skate to where the puck will be, instead of where it is now.”
Spend on the future
“The spending needs to be on the assets that will have the most to do with our global competitiveness five years down the line,” advised Mr. Reid. “We can demonstrate that putting the infrastructure investment into high tech will help Canada most, by driving job creation, exports and long term sustainable competitiveness for Canada, the high tech sector is the best place to investWhile we need to support our provinces and municipalities, we need to give direction about what to spend on. A city could spend billions on a mass transit system, for example, when the problem can be solved quite environmentally by having more knowledge workers work at home -- where they are 20% more productive.”
Mr. Reid gave ten reasons why spending on high tech was the best bet for Canada:
1. More than two-thirds of a high tech company’s cash flow is devoted to payroll. Few other sectors can show that ratio of money going to job creation.
2. Some 35% of that payroll amount goes straight back to the government on an operating basis in the form of source deductions such as PST, GST, HST, “so they will get most of it back anyway!”
3. Half of the revenue for the high tech sector comes from outside Canada and represents net new money being pumped into the Canadian economy, “the best kind!”
4. Both our manufacturing sector and our resources sector are overly dependent on the ebbs and flows of the US
5. The high tech sector has an extremely low carbon footprint – modern software companies are probably some of the best in the world - with no manufacturing, no shipping, no packaging, and very few physical resources required. It is a sustainable industry, relatively more dependent on human brainpower than natural resources.
6. High tech employs a high ratio of immigrant workers: “A huge problem for Canada is putting new Canadians to work because legal, medical, accounting designations are often not recognized here. Tech skills are almost 100% transferable, so companies are able to hire people from all over the world.
7. High tech is also a safe industry, with very few work-related and health hazards.
8. It's an industry that rewards creativity, analytic capabilities, and innovation in general, “admirable human qualities that should be fostered.”
9. The industry supports University and College grads, thus supporting higher ed. in general.
10. It is transformative in nature, whereby the innovations of today are the foundations of the future.
Mr. Reid highlighted four areas of high tech infrastructure spending that would put Canada into the foremost ranks of the “Innovation Nations” -- a consistent CATA drive. The four areas are: the service sector, communications infrastructures, green technology, and healthcare.
The Service Sector
- Support the continuing transformation of our economy from a manufacturing focus to a service sector focus, which has grown to encompass 75% of our economy -- a fact known to everyone but the government
- In sectors like automotive concentrate on making Canada the leader in the ‘next big thing’: developing the services and technologies for the “last frontier of ICT” -- plugging the vehicle into the global communications network, to integrate them into our digital lifestyle. This will spread the opportunity for participation in the automotive sector across the nation, to software firms in every city.
- ICT should be used to promote Canadian super-clusters of expertise, the new “silos” of industrial power. Globalization has made the development of specialty business “silo clusters” very difficult. Support for specific companies such as RIM and Nortel, the core of our telecom cluster, would help sustain a jewel. You can trace the lineage of hundreds of companies to Nortel/BNR; when that kind of a base is lost, the country’s ability to develop supply chains and other “surround” industries is gone for good.
- Tax Measures should be adjusted to the needs of the service economy. In addition to continuing refinement our Canada’s research tax credits, a “Go To Market” tax credit should be issued to any company that has formally filed SRED and has proof of a finished commercial project: “We finance R&D in this country, but we ignore marketing, which is our number one issue. What we can’t do is paint the house and patch the foundation so we all feel better. That would waste what could otherwise be an opportunity.”
- Projects like pervasive and cheap high speed internet should be a major priority.
- Canada should become the number one country in the world in the adoption of broadband technology. This is consistent with U.S. policies on broadband leadership and net neutrality to help support the industries of the future.
- Aerospace is a proving ground for communications technologies. In addition to continuing to support the large projects that are on the drawing-boards, support should be given to public-private funding for “micro-projects”, such as the Northern Light endeavour to place a Canadian lander on Mars in 2009.
- Canada can take a lead in the adoption of energy-saving practices, using ICT to monitor, control and optimize the use of energy.
- Canada can also lead in the drive to save energy in the ICT environment itself, through projects that concentrate on “Green Data Centres’ and ‘Green Computing’.
- Use ICT to make all public buildings more efficient, and use public-private partners to spread proven practices into the marketplace.
– Concentrate especially on services and technologies that provide preventative measures instead of dealing with a response to illness, plus basic wellness;
– Provide electronic records that connect communicate between doctors, hospitals and health care organizations.
All four areas require additional spending on education and human resources transformation, to end the mismatching of job skills and the requirements of the marketplace.
Help the ‘bottom billion’
Canada also has a global social responsibility, Mr. Reid pointed out. “The so-called ‘bottom billion’ – those people living in the poorest countries of the world -- will suffer terribly if the developed nations can’t re-start their economies. The developed nations have sucked in the world’s capital to guarantee their own survival, which has left the developing world in a desperate plight. Unable to save themselves, unable to export because developed-world demand is at a standstill, they will descend into the worst chaos imaginable. Canada needs to get on its feet as fast as possible, to do its part -- however modest -- in re-starting the global engine.” Mr. Reid noted that Forbes magazine has said that the current economic crisis is worse in one way than the great depression: It is a truly global crisis, in which practically no country can claim to be immune. Important regions of the world were economically isolated in the 1930s. Serious crises at that time carried no risk of rapid contagion because of a lack of international financial market integration.
“We urgently need to do two things,” said Mr. Reid. “First, get measures underway to set aside the $60-billion infrastructure fund. Second, use leadership to set out the national priorities for spending -- spending that goes to productivity-enhancing, future-oriented infrastructure. We don’t need a national debate, or the usual Canadian handwringing. The trends are obvious about where we should be spending. Now, get on with the job.”
Be A Stimulator!
CATAAlliance is an active participant in the formation and delivery of government policies, regulations and activities that are critical to the success of Canada's high-tech industries. Your corporate guidance and participation are needed and appreciated as we can leverage the industry voice to be both clear and accurate for maximum effect. Please engage in the CATA Campaign for “An Economy That WORKS!”