Canada is at a critical juncture

This image has an empty alt attribute; its file name is logo-cropped-11-news-300x66.png

Banking, online shopping and social media are the future, but how many of the companies dominating these fields are Canadian?

Source: Financial Post

In the midst of any crisis, one of the most important lessons I’ve learned is that one always has a choice — you can either move forward in a new direction or fall back into the patterns of the past.

Difficult times can offer transformative opportunities and nowhere is that more true than Canada, where we have become economically complacent, choosing to take the easy road rather than investing in the future and new technologies.

Take Alberta for example, which has been lured in by high oil prices on numerous occasions, and as a result has missed the chance to diversify its economy. At the same time, the rest of country has been equally complacent, sitting back and collecting more than $600 billion in net federal fiscal transfers from this oil money, little of which has been allocated into return-generating investments.

The Canadian oil and gas sector will look very different in the years to come as it consolidates and becomes dominated by a handful of large producers directly tied to selling product into U.S. markets. The days of record-setting oil prices may have come to an end, meaning Alberta will now face a near impossible task of reshaping its economy while at the same time having to continue to subsidize other provincial budgets via billions of net federal fiscal transfers.

Meanwhile, over the past decade Canada has gone all-in on real estate, which has represented more than half of our annual GDP growth and accounts for more than three quarters of our total national wealth. For some additional perspective, consider that realtor fees and transfer costs alone represent nearly 1.8 per cent of our GDP, 2.3 times the allocation in the U.S. , according Ben Rabidoux of North Cove Advisors, citing Statistics Canada data.

With so many Canadians out of work and not able to make their mortgage payments, this key sector of the economy is currently under serious duress with some even looking for support from Canadian taxpayers. The mayor of Vancouver recently warned that the city is on the verge of insolvency with a quarter of homeowners unable to pay their property taxes despite the average condo being valued at more than $764,000 and two-story homes at more than $2.1 million. Think about that.

Instead of doubling down to get us to where we were before, why not undertake a plan to reshape our economy and help transition it from old world to new world?

A great place to start is in our heavily beaten-up small and medium business sector (SME) because if given the appropriate support we think it can be the quickest and most effective way to transform one’s economy.

SME’s are a powerhouse, with 1.2 million companies employing 13.6 million Canadians (out of a working population of 15.8 million). It’s also much easier to implement change in the 75 per cent of companies that have between one and nine employees than it is among our larger oligopolistic industries such as banking or telecommunications, which have relied on regulation to prevent innovative and disruptive threats.

This of course will mean a significant policy shift from our existing PMO, which has in the past suggested small businesses are tax avoiders when they should have been rewarding them for being innovators. The government has also tried to layer in additional taxes and regulations instead of streamlining them and encouraging the use of Canadian-based technologies.

We are in a critical juncture as a nation, and if we don’t act now by finding new ways to transform our economy then we face a greater crisis ahead as we become disrupted on a global scale, one in which real estate, oil prices and internal transfer payments won’t be there to save us.