David Dodge: Global challenges, Canadian opportunities
Remarks by Mr David Dodge, Governor of the Bank of Canada, to the Office for Partnerships for
Advanced Skills Annual Visionary Seminar, Ottawa, Ontario, 17 November 2003.
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Good afternoon, ladies and gentlemen. Let me begin by congratulating OPAS for its work in advancing
partnerships between industry and universities. These partnerships will be increasingly important for
Canada in the years ahead. Let me also say how honoured I am to receive the OPAS Visionary Award
for 2003. When I look at the list of distinguished business leaders who have received this award in the
past - Charles Baillie and John Cleghorn, Ted Rogers and Mike Lazaridis, John Sheridan and
Jean Monty - I must say that I am absolutely delighted to join them.
It's a particular pleasure to receive this award since it marks the first time that it is being given to a
person who has made a career in the public sector. This award recognizes that the public sector has
an important role to play in promoting the economic health of a country. Far too often, people think that
the private sector is solely responsible for creating wealth, and that the best the public sector can do is
to redistribute that wealth. The reality is far more complex. That's what I want to talk about today: how
those complexities give rise not only to challenges, but also to opportunities. In particular, I want to talk
about the challenges posed by the globalization of the world economy, and how Canadians in the
public and private sectors can take advantage of the opportunities that the global economy presents.
It is certainly nothing new to say that economies have become increasingly globalized. In his 1962
book, The Gutenberg Galaxy, Marshall McLuhan observed that the electronic mass media were
collapsing time and space barriers. This enabled people to communicate on a global scale. He coined
the term "global village" to describe this change.
Of course, even McLuhan couldn't have foreseen the developments in transportation and
communications that have taken place over the four decades since his book was published. These
developments have converted McLuhan's abstract concept into reality.
Satellite technology gives us live broadcasts from anywhere in the world. Ideas are available
simultaneously to those who have access to the Internet - and that number continues to grow at an
exponential rate. As I stand here today, I can talk to, and hear from, thousands of people across the
country at the same time. More to the point, these technological advances have allowed markets, not
just of goods and services, but also of ideas, to expand as never before.
Think of technology as the enabler of so many of the trends leading towards globalization.
Technological advances have slashed the cost and the time it takes to reach across borders. But
whether that turns out to be good or bad depends on all of us here today. For while technology
enables us to make huge progress, it does not guarantee that this progress will occur.
We are all working to understand the impact of globalization on economic and social development. We
still have a lot to learn. But one thing is clear: the societies that have progressed the furthest in the last
century are those that have embraced the opportunities that stem from being open and adaptive.
As I look around the world, I see a number of societies that are seizing these opportunities for the
good. What I also see is that those societies that are open both to ideas and to economic competition
from abroad are societies that are making the most progress in improving the well-being of their
citizens.
The technological advances that created McLuhan's global village will continue. While the pace of
evolution may speed up or slow down, the world economy seems destined to become ever more
global in nature. The question is then, What challenges and opportunities will this present? Let me
raise three points, which can serve as the basis for our discussion later.
Thinking and Acting Globally
The first is the importance of having a global point of view. The old adage tells us to "think globally and
act locally." But we should really think and act globally.
Let me put that idea in more concrete terms. During the 1980s and 1990s, free-trade agreements with
the United States and Mexico focused Canada's attention on the opportunities south of the border.
Individual Canadians and businesses have been making the tough adjustments that are necessary to
face increased competition and to take advantage of new opportunities. While keeping that continental
focus, it is now important that we broaden our sights and focus on opportunities that are opening up in
the rest of the world.
In a very real sense, the rest of the world is becoming part of our world. With rising incomes,
foreigners are acquiring a taste for Canadian products and ideas. At the same time, our tastes and
interests are becoming more international. We're all shopping in the same global village market - for
goods, for services, and for ideas.
Still, this is a large planet with a wide variety of cultures, each with its own perspective and ways of
doing things. We Canadians need to continue to broaden our horizons, and to think of ourselves as
citizens of that world. That means getting as much global exposure as we can.
Canadians are fortunate to have much of the world's diversity reflected across our country at large,
and in our universities. Six continents' worth of culture can be found here in one country, sometimes in
one city. That diversity allows for mutual enrichment that benefits us all. It is important for those from
different backgrounds to learn about the strengths and rich traditions of this country. It is equally
important that those of us who were born here, into families with deep roots in Canada, to learn from
the backgrounds and cultures of those who come from other continents. By listening to each other, we
learn how to listen to the world. By speaking to each other, we learn how to speak to the world. That
two-way learning adds a new dimension to the metaphor of the Canadian mosaic - the colours in the
mosaic remain distinct, but they blend together to create a vibrant and dynamic picture.
In short, Canada's diversity is a real strength, and it will fall to you, the next generation of leaders, to
ensure that we use this strength to our advantage. So that's the first message I have: think globally,
act globally, and experience the world's diversity.
The Importance of Finance
During my career, I have spent a lot of time working with the financial sector in one way or another.
From a global perspective, I have seen how people's lives can be made better when countries choose
to open their economy to outside investment. So let me now take a few minutes to talk about my
second point - the opportunities that lie within the financial sector, in the context of increased
openness and globalization.
Nowhere have the advances in communication and information technologies had a greater impact
than in the financial sector. Technological advances and increased openness have led to greater flows
of capital and new methods of financing development. Capital flows have become global, as investors
look across national boundaries for the best opportunities for their savings. This has benefited not only
countries that receive investment, but also allowed our aging society to generate higher returns on its
savings, both private and public.
Of course, a country that truly embraces openness in its markets leaves itself open to increased risks.
We have all seen what can happen when investment flows into countries with unreliable or
underdeveloped financial sectors. We have also seen what can happen when investors send large
capital flows abroad without doing their due diligence first. So seizing the opportunities that have come
from being more open has required more effective risk management. For savings to flow smoothly
around the world, the financial sector has had to evolve, inventing new instruments that facilitate
appropriate investments. These trends are likely to continue, and those countries that have financial
sectors that can deliver services efficiently, at home and abroad, will have an important advantage.
But it is not only the private sector that has made advances in risk management. International financial
institutions, such as the International Monetary Fund, have made significant strides in developing a
more robust international financial architecture. And co-operation among governments and central
banks has played an important part, whether within the G-7, the G-20, or the several specialized
groups that have emerged, such as the Financial Stability Forum.
These efforts have paid off. Despite several dramatic events that might have rocked financial systems
worldwide, the work done by these groups has led to the development of ways to mitigate shocks that,
in previous decades, would have been very destructive.
But obviously, huge challenges remain both for private financial institutions and for the public sector -
nationally and internationally. The public sector in every country must take the necessary steps to
ensure that its financial sector is appropriately regulated. And countries need to continue to work
together to develop and implement best practices to promote financial stability. Once again, with the
trend towards increasing globalization, the importance of the financial sector and the need to ensure
that it is appropriately regulated will become even greater.
So that's my second message - recognize the opportunities that the world of finance offers not just in
the private sector, but in the public sector as well. That leads me to my third point, which is the role of
the public sector.
The Role of the Public Sector
As I said earlier, there is a popular but simplistic view that it is the private sector's job alone to create
wealth, and that the most the public sector should do is to make minimal attempts at income
redistribution. Such a view grossly underestimates the nature and the scope of the public sector's role
in promoting a country's economic health. It ignores history, which clearly shows that those societies
that have done the most to improve the economic well-being of their citizens are those where the
public sector has provided the right social climate for the dynamism and creativity of individuals and
businesses to thrive.
In practice, this means that those working in government must have the right incentives to provide the
appropriate framework - one that facilitates higher productivity and innovation in the private sector.
The flip side of the coin is that we should also have the right incentives for the private sector to work
towards enhancing the public good and the productivity of collective action by governments.
The bottom line is that we cannot afford to have the private and public sectors operating as two
solitudes. To work efficiently, individuals and businesses need a well-functioning public sector and the
appropriate framework that provides the right incentives. The public sector has a responsibility to
understand how businesses and individuals work in order to provide the appropriate setting and
support. While this applies to all parts of the public sector, it is perhaps most critical for those who are
responsible for the country's economic and financial framework - including us at the Bank of Canada.
Creating and maintaining this framework, in the context of a changing global environment, will be a
daunting challenge indeed. Part of that challenge will come from developing a public policy framework
that has two dimensions. First, it must have enough consistency with the rest of the world so that we
remain open to competition and to the flow of ideas from abroad. Second, our policy framework must
create unique strengths for Canada so that our public sector is a source of competitive advantage and
does not detract from our other advantages.
What does this mean for students in terms of opportunities for tomorrow? It means that you should be
thinking of careers that combine public and private sector experience, as well as academic. The
lessons you learn in one place will give you a greater ability to work and contribute elsewhere. And this
diversity of experience will give you a set of skills that you will find are in great demand.
And it really doesn't matter where you begin. For example, if you want to make a real contribution as
an academic, some experience in either the private or the public sector will be tremendously important
in letting you bring more to the table as a teacher. In the private sector, academic or public sector
experience will let you view the world strategically, which is difficult if your experience is confined to
just one firm or industry. And if you want to contribute in the public sector, as I have already said, it is
extraordinarily important to have private sector experience so that you can better understand how
business functions. Why? Because, in the end, public policies must foster the effective and efficient
delivery of public goods and provide the incentives to encourage private activities that will create
positive outcomes for the benefit of everyone.
Developing such policies is much easier said than done. But in the last 15 years, we in Canada have
made considerable progress in our macroeconomic policies. The challenge in the future will be to
maintain that progress and to make comparable progress in microeconomic policies. Progress will
need to come from the federal, provincial, and municipal levels of government, in such diverse areas
as labour market policies, intellectual property law, health, environment, and infrastructure
investments. This is where challenges lie, but it is also where opportunities present themselves.
Conclusion
Having mentioned opportunities, let me close by saying a few words about the opportunities for
Canada and young Canadians in the years ahead.
I talked earlier about the great advantage of Canada's cultural mosaic. In a globalized world, this
provides a real opportunity because it gives us the ability to understand what is going on elsewhere on
the planet, while at the same time drawing on the real strengths we have in terms of our unique
Canadian social and economic culture.
When I travel abroad, I am always amazed by how welcoming foreign businesses and public entities
are towards Canadian participation. At the same time, I am also amazed by how little effort we
sometimes make to take advantage of this good will. As young people, you are going to have to
capitalize on these opportunities.
So I hope that you will take my three messages to heart: have a global perspective, recognize the
importance of the financial sector, and understand the crucial role of the public sector. With the global
economy continuing to evolve, it will become increasingly important to act on these ideas, no matter
where your career path leads you.