US-Canada Customs Union should be priority to help tech revolution
Canada faces an economic “wall” whether protectionists like Donald Trump and Bernie Sanders win or whether Hillary Clinton does.
The wall is a virtual one erected by Canadian governments that have not made emerging technologies a priority as well as the nature of the physical border and free trade agreement itself.
Emerging technologies transform exponentially so a trade and taxation refresh is urgent.
Historically, this has always been essential. In the 1960s Canada was about to be shut out of auto manufacturing and relegated to importing U.S. cars. That is when Ottawa policymakers invented the Auto Pact which is a cornerstone of the country’s living standards. Now the border has “thickened” again – to autos and oil – so Canadians face tough choices and must reinvent.
In autos, Canadian taxpayers have been spending a fortune to build a second bridge to link Detroit from Windsor to stay in the auto game. In oil, the Keystone Pipeline XL has been nixed so other strategies are needed. And now Canada must join the new economy of robotics, nanotechnology, biotech, artificial intelligence, computation and energy.
Two policy solutions are obvious. Canada’s tax system must match U.S. venture capital tax incentives to encourage innovation. Secondly, a new “trade” deal aimed at creating a customs union or tech Auto Pact must be negotiated so that workers, capital and goods can flow easily.
Without labor mobility to the U.S. and capital formation at home, Canada’s technology entrepreneurs will continue to have to export themselves and be simply another innovation farm team for the United States.
The Auto Pact took years of tough negotiations to pull off, as did NAFTA, but the next step is critical and here’s how it would work: The border would be replaced with a perimeter around the two countries. This is the goal of Beyond the Borders, but progress has been glacial since 2011.
Today’s most valuable assets are on two legs which is why a customs union for workers is essential. An estimated million educated, entrepreneurs from Canada work and live full time in the science, technology, engineering and financial clusters in Boston, California and New York.
A customs union (and liberalization of bilateral immigration) would allow them to more easily set up shop, or commute, from Canada. Furthermore, many Americans would move north, grabbing the opportunity to move to Canada for social and political reasons, to tap talent here or to simply live in unique regions such as Vancouver Island or the Rockies or with friends and relatives.
In the meantime, networking bridges must be erected immediately. To that end, I’ve helped launch two events – a bio-tech event in Toronto May 31 with Ryerson University and an emerging tech one in Calgary June 23 with the Calgary Chamber of Commerce – to educate and link Canada’s innovators with the tech and science revolution underway south of the border.
I am affiliated with Singularity University, the world’s only educational institution dedicated to providing courses, advice and incubators to help transform the world.
Canada, like most nations except the U.S., has a huge technology deficit.
The United States leads thanks to massive government (military, space, scientific, medical) research and private investment.
In 2014, the amount of venture capital investment was US$40 billion in the U.S., more than British Columbia’s government spent in total. (In Canada, the VC total was US$1.7 billion.)
The amount of pure U.S. government-funded research and development of all kinds in 2014 was more than US$100 billion. Another US$200 billion was spent by universities and the private sector.
Canada is not in that league, but doesn’t have to be. This research bonanza can by tapped by Canadians or anyone else as long as they have brilliant ideas and can execute. This is why linkages must be forged abroad and tax incentives created at home.
Without this, Canada will be shut out. As a Canadian entrepreneur in Silicon Valley stated bluntly: “The reason startups don’t stay in Canada and come to the US is 100% about access to capital and people. Canadian governments spend a lot of money on fake startup stuff.”
By the way, Canadians are no slouches when it comes to innovation and financing, notably in the mining, energy and oil sectors where engineering and technology is world class.
But emerging technologies are replacing traditional resources and manufacturing and, while those are still important, Canada must designate a dynamic and well-funded innovation sector as an economic priority.
For Canadians, this is another 1960s moment. The key to prosperity is to adopt the American tax template and then to remove the U.S.-Canada border impediments, physical and virtual, as quickly as possible.
First published in National Post May 6, 2016