Living up to our Potential
in a Globally Competitive World
President & CEO
RBC Financial Group
Kingston Canadian Club
February 10, 2005
Good afternoon. I would like to thank Patrick McCue and the
Kingston Canadian Club for inviting me today.
It is always a pleasure to be back in Kingston where I have
such great memories from my university days.
Each time I visit, I am amazed at how much both Queen's and
Kingston have changed, but comforted by how much remains the
This morning, I met with a class from the Queen's Business
School, and what did hit home for me was not how much the
students and school have changed, but rather how much the
environment they are about to enter has changed.
Students still talk about the same issues that preoccupied
my class 25 years ago. They're worried about landing the best
job. About how long it will take to repay their student loan.
About the type of career they want and how to achieve it.
They struggle with the tension between ambition and lifestyle,
between making money and solving world issues. But they enter
a world and a business environment that is vastly different
than the one my class faced.
When I was at Queen's, we had every confidence that Canada
was one of the best countries in which we could strive to
succeed. We weren't guaranteed a good standard of living,
but we trusted that it was well within our reach. There was
demand for most graduates regardless of their training, and
most joined companies and institutions, fully expecting to
build long-term careers.
But graduates no longer take much of that for granted. They're
living in a globalized, high-tech, hyper-competitive and transparent
world. It's a world in which there has been profound change.
And the stakes have never been higher for every Canadian.
Canada has much to offer its citizens when it comes to social
services, lifestyle, and a high standard of living. Yet it
is too easy for us to be complacent about the economic shifts
and global rebalancing that could threaten our future prosperity.
That's what I would like to talk about today. And my message
has a sense of urgency.
If we want to achieve our potential as a successful society
in the 21st century, we must understand the economic challenges
our country faces.
More importantly, we must meet those challenges in a way
that provides a higher standard of living for all Canadians.
Think back to 1990. How many people thought China would be
a giant factory, producing both cheap goods and value-added
products for the whole world? How many people saw India as
a centre for software outsourcing?
Who would have thought that a Korean car would end up winning
awards for quality and performance? For that matter, even
the Internet was a relatively new development in 1990, and
cell phones were something that you would have expected to
find at one of the Kingston Penitentiaries.
Our lives have been changed by globalization, technological
advancements, transparency and geo-political shifts. The way
business is conducted has changed dramatically and the time-frame
in which companies succeed or fail has shrunk considerably.
There is no question that these influences have created benefits,
including economic growth, gains in productivity and an improved
standard of living in most developing countries. We have seen
great wealth creation for entrepreneurs, innovators, and risk-takers.
The stage has now been set for a dynamic and expanding global
economy, led by advances in science and technology and a re-definition
of the global economic system.
This is just a taste of the world we will inhabit in the
years ahead. It will be a world filled with great potential
for economic gain and advances in human well-being, but it
will also be a world of intense competition, complete transparency
and ever more rapid advances that will transform industries.
It will be a world where a gradual shift of economic power
from west to east will create significant opportunities, but
also major challenges.
Canada must continue to re-position itself to compete in
this new reality.
Canadians have high ambitions for the kind of society we
want. You see this almost every time you pick up a newspaper,
from the current debates over how we should strengthen our
health care system, to how we should deliver new funds to
make our cities more liveable.
All of these are important concerns - but they all rest on
one critical assumption: that we will be able to afford the
It is critical that Canadians recognize that a well-intentioned
social agenda cannot be implemented without a sound economic
Simply put, if we want the world's best healthcare and more
liveable cities, then we need to become one of the world's
most competitive nations to pay for it. We need focus, public
policy and a commitment from all constituents to live up to
There are three ways for an economy like Canada's to grow
- The first is to invest in improving human skills through
education and training, and by investing in the most advanced
- The second is to pursue international markets through
foreign trade and investment, identifying our niches and
specializing in those things that we do best.
- The third way to promote economic growth, and the one
I would like to emphasize today, is to promote and stimulate
innovation and entrepreneurship.
I'd like to, first, spend a few moments providing some context
on the new competitive environment in which we find ourselves.
We know that new jobs and wealth will come primarily from
new activities, not by protecting existing businesses and
industries where jobs are declining.
These new activities - new goods or services, or new ways
of doing things - will occur in countries that not only generate
new ideas or knowledge, but in countries that can commercialize
them successfully as well.
There will be intense competition between countries to see
who will be the leaders. Canada must find its niches-and quickly,
because the rest of the world won't wait. Competitiveness
and productivity will determine where investments are made.
Our disappointing rankings in the most recent Global Competitiveness
Report of the World Economic Forum show that we must take
this challenge seriously.
Our productivity level has slipped, and if we want to elevate
our real standard of living, especially as our work force
ages, we must reverse this trend.
In recent testimony before the Senate Banking Committee,
David Dodge emphasized the need to boost productivity, suggesting
that this was "perhaps the most important micro-economic
issue facing Canada."
To improve our competitiveness:
- We need to move faster in reforming our tax system, eliminating
disincentives to investment and growth, and creating incentives
for investment and innovation.
- We need to improve the flexibility and training of our
workforce so they are better able to adapt to new competitive
- We need smart regulation that protects the public interest
but also recognizes the need to compete.
- And we need sound public policy that recognizes our competitive
advantages and strategically positions Canada for future
A second facet of this new competitive environment is the
increasing impact of globalization. Countries like China,
India, Brazil, and Mexico are aggressive new competitors who
will become even more formidable as they enhance their capabilities.
China will be a major global economic force, not only because
of the size of its marketplace and low wage rates, but because
it is developing the knowledge and skills needed for a 21st
China is graduating 200,000 engineers per year - almost three
times as many as the United States does.
And while many of the world's most talented and educated
people once immigrated to western countries, many Chinese
graduates are now remaining or returning home because of the
Napoleon Bonaparte once described China as a sleeping giant,
and said "let her sleep, for when she wakes, she will
shake the world".
I don't think that Napoleon was referring to 21st century
industrial policy, but in the end, he was right. In my view,
the world's economic landscape will be redefined by domestic
growth in the east, led by China. This is a significant change
from the last two decades when the US was the economic engine
of the world, and Canada derived natural advantages accordingly.
China's domestic market potential is staggering. As a result
of workers migrating from rural to urban areas, it is estimated
that China is growing a city the size of Houston every month.
Foreign direct investment in China is currently running at
about a billion dollars a week. Someone is going to make a
lot of money.
In the years ahead, we will see Chinese cars and computers.
But we'll also see Indian software companies that retail products
under their own brand names, and competing head-to-head with
the Microsofts of the world. We're already seeing a tough
new competitor in the aviation industry-in Brazil.
Globalization is a double edge sword creating new and growing
markets but also increased competition in our traditional
markets. Canada has to find its own areas of specialization.
As emerging market economies become more successful, they
will also become viable markets for unique, high-value goods
and services, the kinds of things where we must focus our
own efforts and also they will become increasingly competitive
in areas where we have traditionally enjoyed strength.
A third reality is that, to succeed, Canada has to build
business services to support entrepreneurship and the creation
of globally competitive Canadian companies.
Canada has one of the best financial systems in the world,
and over the past 10 to 15 years we have responded to the
needs of the knowledge-based economy. But we know that we
need to do more to support the growth of our small and medium-sized
As a country, we do a good job at getting new businesses
up and running. But we fall short when it comes to growing
our small companies into larger ones, and in improving their
One way to address this is to make sure our new businesses
have better access to capital through a wider scope of partners
We need more innovative ways to finance the development of
knowledge-based companies, especially those where risk is
high, time to market is long, and life cycles for new products
and services are short.
Another way to meet this challenge is to increase our country's
investment in fundamental science, through expanded support
for research in our universities and hospitals.
I believe this is a key role for government. These investments
provide the new knowledge base that businesses and entrepreneurs
can leverage to strengthen existing companies or to create
For its part, the Government of Canada has set a goal of
making our country the fifth most research-intensive nation
in the world by 2010.
But talk is cheap.
Today, we are number 14. If we are to achieve the government's
ambitious goal, we will need to focus on creating a competitive
environment to support innovative companies, and business
research and development. There are some good examples of
this, and none better, perhaps, than right here in Kingston.
To prepare for this visit, I picked up a copy of a paper
written in 2002 by the Kingston Economic Development Corporation
in response to the government of Canada's Innovation Strategy,
called "Scope and Scale: Kingston's approach to innovation".
I wouldn't be surprised if a number of you in this room had
a hand in writing it.
Clearly, Kingston already has most of the ingredients required
to ensure economic prosperity in the 21st century: an impressive
scope of world-class academic and health care institutions
dedicated to research, a growing base of companies focused
on the commercialization of research, and a strong will to
build networks between all sectors. I believe you are taking
exactly the right approach, and I congratulate you for your
vision, especially for the focus on increasing support for
targeted commercialization programs.
Other cities and provinces are quickly moving down the road
of innovation as well. British Columbia is becoming a major
centre for fuel cells and biotechnology; and Manitoba, for
public health research.
Last year, I visited the largest science project in Canada-the
Canadian Light Source Synchrotron in Saskatchewan. This $174
million investment will enable critical new research into
the microstructure of materials.
Right now, somewhere in BC, or Saskatchewan, or right here
in Kingston, researchers who are coming up with remarkable
new ideas that will create lucrative opportunities to enhance
But this huge and growing investment in science and innovation
does raise questions:
- How can we capture the commercial potential of science
to build a stronger and more successful Canada?
- How do we convert new knowledge into new jobs and new
This is an area where Canada is badly lagging.
In the United States, the ratio of commercialization revenue
to research expenditures is about three times higher than
it is in Canada. In addition, institutional research in the
U.S. generates far more patents per dollar of investment than
in Canada. And we can't just compare ourselves to the United
States, because even they recognize that they are lagging
and face serious competitive challenges from the rest of the
Foreign-owned companies and foreign-born inventors account
for almost half of all U.S. patents. Japan, Korea and Taiwan
account for more than one-fourth of all U. S. patents.
To the fullest extent possible, we must ensure that new knowledge
generated here leads to successful commercialization in Canada,
so that the resulting jobs and wealth flow to Canadians. To
accomplish this, we must collectively create the right framework
to attract research, for new and innovative companies to succeed.
There are a number of things we can do to make this happen.
- We need to identify and build support for improvements
in our technology transfer process.
- We need more consistent and user-friendly intellectual
property policies across our universities and research centres.
- Collectively, we need to develop strategies and facilities
to encourage and facilitate commercialization.
- We need to improve venture capital participation in early
stage technology business, through better public/private
sector risk-sharing models.
Now is the time when financial institutions, government and
academia must intersect. We need a financial system that enables
growth; we need government policies that encourage, facilitate
and reward growth; we need an educational system that produces
the people capable of generating new ideas and we need a business
climate that produces leaders with the management skills necessary
to bring new ideas to market.
This will require both public and private capital. This is
not an ideological issue. It is a practical question of finding
what works best.
At RBC Financial Group, we've given a lot of thought to what
we can do. We supported the development of Canada's National
Angel Organization, whose purpose is to expand the circle
of Canadians who have the personal wealth to invest in local
new businesses that are at the early stages of growth.
We are also involved in the venture capital market through
our subsidiary, RBC Technology Ventures. This part of our
company is focused on early stage venture financing, starting
with seed capital.
Since 1999, RBC has helped 48 new companies raise more than
half a billion dollars, with over half of this coming from
outside Canada. The confidence of these investors is a ringing
endorsement of the quality of science in this country. But
we can't rest on our laurels.
If we don't do a good job in commercialization, then the
benefits of our expanding public investment in new knowledge
will flow to other countries that can commercialize better
than we can. We must create a new generation of Canadian companies,
headquartered in Canada, and creating good Canadian jobs by
producing valuable goods and services that can be sold around
It is great to see the growth and success of businesses like
Kingston' Millennium Biologix, a biomedical company that develops
and supplies products for Regenerative Medicine in the field
of skeletal disease and trauma. Global commercialization of
research is at their core of their business, and their corporate
vision is to be the most sought-after international alliance
partner in world markets for bioactive medical products and
tissue engineering systems.
This multinational corporation has experienced so much growth
that they just went public a few weeks ago-and coincidentally,
they also happen to be an RBC client. For a banker, nothing
is more satisfying than a story like this.
In addition to more creative financing, we also need to expand
the pool of skilled business managers in Canada. We cannot
grow our best companies on a national and global scale without
this leadership capability.
If Canada is to succeed in commercializing new knowledge
from its universities, research hospitals and other institutions,
it must do a better job of training managers who can create
commercial success from new knowledge.
Proportionately, there is not much difference between Canada
and the United States in the graduation of scientists and
engineers. But the United States produces nearly twice as
many educated managers as Canada does. This is part of Canada's
innovation gap. You see this illustrated in the Global Competitiveness
Report of the World Economic Forum, which shows that companies
are not taking full advantage of Canada's business environment.
Clearly we can and must do better.
In a country as large and dispersed as Canada, we need to
figure out better ways to collaborate so we can create scale
and expertise. For example, universities and centres of excellence
need to work together on projects wherever possible. Without
scale, we won't develop the level of excellence needed to
As a matter of interest, I co-chair, with Dr. John Evans,
the Toronto Region Research Alliance, whose mission is to
build public and private research capacity, embrace the commercialization
of research and attract research-intensive companies to the
GTA. Our focus is primarily on building consensus among the
region's institutions, to align academia, business and government
to accomplish our objectives.
At the start of my remarks, I stressed that Canada faces
many challenges if it is going to succeed in the knowledge-based
economy of the 21st century. I also expressed concern that
we were too complacent about what we needed to do to address
these challenges. But I don't want to leave the impression
that nothing is happening.
There are hopeful signs, such as:
- the national initiative by the Canadian Manufacturers
and Exporters to draft a new strategy on the future of manufacturing
- The Conference Board of Canada in producing its annual
Performance and Potential reports on the Canadian economy.
- And the Canadian Labour Congress has launched its own
initiative, recognizing the need for improved productivity
performance in Canada.
But we need more.
We need agreement that our country's economic agenda is just
as important as our social agenda - the two are inextricably
linked. If we want the world's best healthcare system and
its most liveable cities, then we need to become one of the
world's most competitive nations in order to pay for it.
This requires focus, coordination, and investment. And it
requires changes to our existing rules regulations and processes
-- and the commitment of all constituents. It is about execution
and must be based on a long-term strategy.
Today, Canada has so much going for it. We have an abundance
of natural resources. We have the only budgetary surplus in
the G7. Our ratio of net debt to Gross Domestic Product is
among the best in the OECD. Our immigration polices enable
us to attract valuable human capital. And Canada has a reputation
as one of the best places in the world in which to live and
Canada is a great country, but we must never become complacent
about how much hard work it took to get here, and how much
hard work it will take to maintain and improve our standard
We are competing in a world where significant economic shifts
are occurring. If we are going to succeed in this new world,
our politicians, our business leaders, our labour leaders
and our academics must work together and focus on ensuring
our businesses have every competitive advantage. We have abundant
raw material to work with but we must have a coordinated strategy
to ensure that Canada has every opportunity to live up to
its potential, for the benefit of all Canadians.