Who and How? Top International Growth Jurisdictions
Archived Topic Box from the 2004 Fourth Annual Benchmark Report
How BC Measures Up Internationally
British Columbia competes with nations and sub-national jurisdictions across the globe. Comparisons have been provided
throughout this report, illustrating how BC measures up on key indictors against other Canadian provinces, key
U.S. states and OECD member nations. While BC performs fairly well on indicators such as environment and health
outcomes, the province has – for some time – posted middling performance on many economic measures.
While interesting, this comparison is particularly valuable to British Columbians for two reasons. First, it provides
a realistic competitive analysis, and a picture of where we stand today – not simply against those regions we interact
with most frequently, but also with those we increasingly compete with for business and investment dollars in a global
knowledge-based economy. Second, studying international competitors in greater detail allows us to benchmark "best
practices" against jurisdictions that have consistently led the 30 member Organization for Economic Cooperation and
Development (OECD) in terms of overall economic performance. By examining and emulating jurisdictions that
have improved their economic fortunes, British Columbia should be able to accelerate efforts to achieve and maintain
a position as a leading economic performer.
Lessons From Top Growth Jurisdictions
Average annual growth rates for individual OECD nations fluctuate with global political and economic conditions,
commodity markets, and numerous other variables. While it is important to note that Gross Domestic Product (GDP)
comparisons by no means capture all of the factors that contribute to individual and societal well-being –
such as human and property rights, social safety nets, access to health and education and other key factors –
it continues to be the most readily available measure of economic success and more often than not directly correlates
with comparative well-being in other areas.
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Looking at average annual real (inflation adjusted) GDP per person growth rates for OECD member nations over the
past decade (see table), Ireland, Finland and Australia come to the fore as reasonable comparisons for British Columbia
based on common law tradition or similar industrial structure. A similar study of average GDP growth over the past two
decades (1983-2002) illustrates the staying power of these particular national economies, with Ireland second among thirty
jurisdictions, Australia eleventh with Finland at a weaker sixteenth due to a tough recession in the early 1990s. A brief
analysis of these three jurisdictions as long-term growth leaders, and some of the factors which led to their economic
success, is provided below.
Ireland
Often called the "Celtic Tiger" to draw positive comparisons between it and the rapidly growing "Tiger" economies
of Asia, Ireland has become a paragon of rapid and sustained economic growth, turning itself from a relatively impoverished
nation to an international leader in advanced knowledge-based industries within a couple of decades. With
little domestic capital or industry in the post World War II years, Ireland made a number of economic decisions that
formed the basis of its future growth beginning in the late 1980s. Key among them was lowering corporate taxes for
certain sectors to a flat 10 percent and making use of the country's strong links to the U.S. developed through years of
emigration. The effect was the rapid encouragement of foreign direct investment in the nation.
These reforms were enhanced by Ireland's membership in the European Union in 1973 allowing the English speaking
nation to offer foreign businesses and investors easy and cost effective access to the European market. Through the
Industrial Development Agency's careful management of business clusters and a concerted focus on just a few key
sectors (IT and ICT; pharmaceutical and health-care; financial services; and, international service industries such as
software and customer service support) growth was skilfully structured, and resources and efforts targeted. Ireland
realized early on the importance of a skilled and educated workforce, focusing on high school and university education
in order to offer a sufficient supply of workers to the growing knowledge-based industrial sector.
Finland
As a small and historically resource-based economy, at first glance Finland shares much in common with British Columbia.
Finland's economic mainstay has been manufacturing for export, primarily in industries such as wood products, metals, engineering,
telecommunications, and electronics. While the country has abundant forest and mineral resources, it also relies heavily on imports
of raw materials and manufactured components. The early 1990s brought a severe recession to the nation with the collapse of the
Soviet Union, a major trading partner, but economic adjustments and currency devaluation since produced growth rates among the highest
in the OECD. Finland also ranks among the world's most technologically advanced nations, spurred by its success in the ICT industry
(with Nokia and others leading the way), industrial automation and electronics industries following a long line of technological
advances in traditional Finnish industries.
Finland also moved beyond simply being a producer of raw materials. The forest industry
spawned advances in related and value-added products and industries including wood tar, sawn goods, manufactured wood items, fine paper,
logging and paper machines and technologies, and business services such as consulting and planning. Other resource industries, such
as mining, have followed a similar path from raw material export (using imported machinery, capital and technology) to exporting cutting
edge knowledge-based resource goods and services. Today, the Finns are no longer dependent on raw material exports, but instead are world
leaders in the manufacture and export products from many of these advanced resource-related industries. Other key sectors of the Finland
economy – such as chemicals, electronics and manufacturing – also have their roots in past advances in the forest and metals
industries. This success is generally attributed to sound macro-economic management and a focus on technology as well as ongoing
investments in improving the knowledge, skills and resources of the working population, especially decision makers.
Australia
Sharing a common history of British rule as well as a similar geography, the relatively unpopulated and resource rich
nation of Australia also bares much in common with Canada and British Columbia. Through a regimen of reforms in
the 1980s and 1990s Australia took a number of steps to enhance the competitiveness of its economy and to increase
trade through reduced protectionism, lower import tariffs and adopting a floating exchange rate. These policies combined
with financial market deregulation, changes in competition policy, and labour market reforms have resulted in
a stable, low interest rate environment conducive to investment and growth. Australia also led the way in embracing
and diffusing information and communications technologies, supporting low cost and secure internet access, increasing
public R&D expenditures, ensuring access to venture capital, and investing in a highly educated workforce with
special emphasis on science graduates.
Lessons For British Columbia
Each of the economies discussed faced a unique set of issues and circumstances, with some attaining their current
leadership position through political upheaval in the post-war era, while others had a smoother path of stability more
characteristic of Canada. Some have resource based economies similar to British Columbia, while others have relied
heavily on manufacturing and technology industries. Despite the differences, there are certainly similarities among
OECD nations that have enjoyed rapid and sustained economic growth in recent decades. In a series of recent reports
the OECD has analyzed these issues concluding that "...growth is not the result of a single policy or institutional
arrangement, but a comprehensive and coordinated set of actions to create the right conditions for future change and
innovation". OECD work has isolated several key factors that play a role in growth. The main factors follow:
Macroeconomic Stability
Stability, especially stable macroeconomic conditions in an economy, is an important growth driver. Having high and
variable inflation is a certain way to depress investment while an excessive tax burden will distort resource allocation.
In many of the cases above, macroeconomic policies have been at the forefront of growth. Canada's own fiscal turnaround
in the 1990s involved controlling inflation, reducing the risk premium in Canadian interest rates, eliminating
the deficit and maintaining successive budget surpluses, thereby improving the overall investment climate.
Capital Investment
Investment in both physical and human capital is essential for economic growth. The accumulation of physical capital,
including business investment in machinery and equipment, has consistently been seen to provide high returns
and is tightly correlated to productivity growth. Recently advances in and adoption of ICT infrastructure have had
impressive returns in the U.S. and a number of other OECD nations. Canada and BC, while slower to adopt technologies and reap
their advantages, have the benefit of an excellent communications infrastructure, high internet usage
rates, and growing technology clusters. Similarly, economic growth depends heavily on investments in human capital,
especially as knowledge and information based industries become major sources of value for modern economies.
In all leading growth jurisdictions, investments in education have been essential to the growth process and ensuring
an agile and skilled workforce capable of adapting and utilizing new technologies. While Canada and BC compare
favourably, attention to high-return investments such as science graduates, lifelong learning and early childhood development
are worthy of continued attention.
Trade Exposure
Without exception, top growth jurisdictions focus on foreign trade and export-oriented production. Foreign trade
drives both economic growth and productivity through increasing competitive pressures on an economy and allowing
for gains through specialization in areas of competitive advantage. Further development of the export sector allows
small open economies – such as BC – the opportunity to gain productivity advantages that coincide with economies
of scale and larger markets. While Canada and BC already enjoy relatively open borders, shifting the composition
of exports to more knowledge-based IT and ICT industries will further increase the growth potential of current trade
patterns. BC Progress Board benchmarking demonstrates that ongoing focus is needed to effect sustained improvements in
BC's lagging productivity and export performance.
Research and Development
Investments in research and development are closely linked to enhancing the capability of a nation's human capital,
the development of new technologies and "best practices," their diffusion throughout the economy, and the encouragement
of productivity enhancing innovations. Because BC's economy has been dominated by low R&D intensive
industries and an industrial structure composed of relatively few head offices, BC and Canada as a whole continue to
lag other OECD nations in research and development.
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