Statistics Canada reported on January 10 that our national unemployment rate rose to 7.2% in November, now higher than the United States, which stands at 6.7%. In December, Canada shed 45,900 jobs, contrary to the 14,000 gain economists expected. And the Canadian dollar is trading lower.
As the global economic landscape shifts, Canadians are again waking up to the realization that we are a commodity-based economy held hostage to a commodity-based mindset. When world demand for our natural resources changes, so too do the prospects for our economy. There is nothing we can do to change demand fundamentals for commodities; we are completely at the whim of fluctuations in forces well beyond our control. There's no secret sauce to transforming the Canadian economy to one that is less susceptible to the volatility of cyclical gyrations of commodity prices. Solutions to this problem are as complex and multi-faceted as the problem itself.
We know that productivity and innovation are central to our economic performance and standard of living. Yet we continue to fall dangerously behind. Last year, Deloitte published "The Future of Productivity", the latest of many studies that paints a picture of Canada as a productivity laggard in the bottom quartile of the Organisation for Economic Co-operation and Development (OECD).
We also know that a healthy and robust capital market and efficient regulatory regime to support it is essential to capital formation. Yet, the fact remains that Canada – the second largest country in the world with an economy the size of the state of California – is made up of an alphabet soup of 14 distinct regulatory jurisdictions. Each is governed by a unique legislation, bureaucracies and entrenched vested interests. For Canadians, it is often easier to raise capital and trade with the United States than it is within Canada.
Canada's economic and social union – the backbone of Confederation itself – is weak and ill equipped for the 21st century economy. So long as we have warring jurisdictions and parochial politicians fighting to protect them, Canada will be weaker than it should be. Unfortunately, as we saw with the challenge to Ottawa's desire to create a national securities regulator, that realty won't change any time soon.
Canada's capital markets are far from efficient. Each province has its own securities regulator. That patchwork means that if you want to raise money nationally, you have to register to do it at least 10 different places and pay for the lawyers, accountants, and advisers in each place. Compliance has become an industry unto itself, costing hundreds of millions of dollars and providing no economic value added, except to an army of lawyers.
The net result of the regulatory burden, bureaucracy, overlap, and duplication, is an unnecessarily high cost of capital for even trying to do business in Canada. That disincentive to invest in Canada and Canadian projects is real. Yet quantifying it is difficult. How do you measure an investment that never made it because it was easier to go somewhere else? How do you calculate the cost of an entrepreneur who couldn't raise money for his project and gave up, or left Canada?
Regulators must rigorously enforce rules that protect investors. But they must be sensible and meet the basic test of common sense. Excessive, complex, and multi-jurisdictional regulations are putting a chokehold on Canada's economy.
Policymakers must make it easier for entrepreneurs and capital to meet.
Unleashing entrepreneurial creativity and intelligent risk taking is a precondition to widely shared prosperity. Canada's financial and regulatory system should be designed to foster capital formation, not inhibit it. Our standard of living depends on it.
Daniel Veniez is chairman of Canadian PremierFunds, which creates and distributes financial investment products through the exempt market. He is also a director of Northstone Investment Fund.
