by Randall Morck, University of Alberta, and Bernard Yeung, University of Michigan, under contract with Industry Canada, 1998
Summary
In forecasting courses, undergraduate students of economics are routinelytaught to plot trends in variables of interest, and then to use statistics toextrapolate them into the future. This procedure has the advantage of requiringvirtually no work in understanding the thing being predicted. It also leadsto spectacularly wrong results. We believe the key to making educated guessesabout the future is understanding some basic elements of economics. Webelieve an economic theory called Austrian economics, part of which hasrecently emerged from a half-century of obscurity in the guise of endogenousgrowth theory, is the key to understanding our current situation.
Predictions that the world is on the verge of a totally new age are fun tomake but the world usually does not co-operate. Corporations and jobs 10 yearsfrom now will probably not be that different from what they are now. However,there are a few changes that probably will matter. We believe the most importantof these to be the accelerating pace of innovations, globalization, and thechanging demographics of Canada's population. These three changes are notunrelated.
Immigration is probably the only way to rescue Canada from demographicdisaster as its existing population ages. This leads us to what we thinkare some reasonably safe predictions about Canada 10 years from now: its populationwill be more diverse than that of other advanced Western countries,and the diversity will be a tremendous competitive advantage in forging economiclinks with newly rich countries in Asia and elsewhere.
Accordingly, globalization can be a very good thing for Canada. We maybe in a better position to benefit from the shift of the world's centre of economicgravity out of the North Atlantic. Canada's current policy of pushing forglobal free trade makes sense. But the accelerating pace of innovation is aneven stronger rationale for Canada to push for free trade.
Innovations have unique economic properties. Once a firm has spentmoney on R&D to develop a new process or product, it makes a higher returnif the innovation can be marketed on a larger scale. We believe it will becomeincreasingly obvious that the real competition in the global free market economywill be competition to innovate. If Canadian firms are to be competitiveinnovators, they must be able to earn high returns on their innovations. To dothat, they must have access to the largest market possible: the global market.
In our view, government has a crucial role to play in fostering Canada'seconomic health in the next decade, but this role is quite different from the oneit has assumed in much of the 20th century. Government is becoming a competitivebusiness. Governments that fail to provide high-quality tangible andintangible public infrastructure at competitive tax rates will lose capital, skilledlabour and therefore knowledge to other economies. A critical part of thisinfrastructure, we believe, is a sound, reliable and fair legal system that protectsproperty rights, both tangible and intellectual. Essential to the legal system are corporate governance laws that promote investment by strengtheninginvestors' trust in corporations. Education, public order and social safety netsare other basic components of the infrastructure. Subsidies to corporations, forwhatever allegedly good cause, are not.
We conclude with a brief description of the corporate job of the futureand end with a forecast that we believe to be a sure bet, in case the others failto pan out.