Miller’s Musings; The Porter prescription: strong medicine

In last month’s column, I pointed out a few shortcomings with the major study on competitiveness done by Professor Michael Porter of Harvard University for Ottawa. In spite of certain weaknesses in the analysis, it does seem that Porter has come up with sensible recommendations to remedy Canada’s structural economic problems. This is fortunate, for Porter’s prescription is likely to influence Canadian industrial policy in years to come.

Our industry would agree with many of the elements of Porter’s “economic vision.” Both becoming an “innovation-driven economy” and increasing “the sophistication of the resource sector” (to use two of Porter’s phrases) are what the mining industry has been all about in recent years. Similarly, the mining industry supports “achieving free trade within Canada,” “building on regional strengths,” and especially, “creating and maintaining a supportive and stable macroeconomic climate,” all elements in this vision. There is medicine for all here.

The study advises business to abandon its “static” concept of cost and to innovate continually for increased productivity and product differentiation. In becoming more sophisticated competitors, Canadian firms should invest more in specialized skills for the workforce. Business should interact more with educational institutions and pursue research in universities and government laboratories. Trade associations, such as the Mining Association of Canada, could provide co-operative services and promote joint training, technology, or other opportunities, especially for the smaller and medium-sized member firms.

According to Porter, business should also nurture Canadian suppliers and establish links with Canadian-based firms in related industries. With respect to human resources, firms must develop labor-management relations based on productivity and rely more on performance-based compensation. In Porter’s words, “labor should be treated as a partner, not as an adversary.” Finally, businesses should adopt global strategies and stop looking to government for subsidies and other forms of direct support. Rather they should pressure governments to aid competitiveness by providing appropriate infrastructure, framework policies, and incentives.

By this scoreboard, Canadian mining stacks up reasonably well, though there is undoubtedly room for improvement. Our industry would also support the suggestions that Porter has for Canadian labor and for governments. Briefly, labor must focus on productivity and on broadening and upgrading the skills of every worker. Porter also advocates more co-operative labor-management relations: “If Canadian industry is to compete successfully in the future, labor must move beyond its traditional and deeply rooted inclination to see management as the opposing team’.”

The study also advises governments to: encourage adjustment and upgrading; minimize direct interventions; rely on incentives instead of grants; redesign social programs that sacrifice incentive and productivity growth; improve intergovernmental co-ordination; be open to foreign investment; and maintain sound macroeconomic policies. Specifics for government include: education and skills development; research and technology; regulatory reform; and promoting industrial clusters. Industry may have a problem with the recommendation that government adopt stringent environmental standards. Isn’t that what we have now?

But overall, Porter’s advice is worth listening to. If Canadians and their organizations will make the necessary adjustments in their attitudes and behavior, there is a chance that our children and grandchildren may participate in the sort of economic growth and development that our generation enjoyed in the postwar decades. The alternative is not attractive.