Category: Perspectives

Canada’s window of opportunity to strengthen and reinvent our economy will slam shut unless we fix a political culture averse to taking the risks necessary to propel us ahead

 

Net zero by 2050.

Zero plastic waste by 2030.

100 million people by 2100 with zero economic strain, service backlogs or civil strife.

Zero chance.

Canadians are growing accustomed to hearing lofty, long-term policy aspirations from political leaders. But, at an alarming rate, Canadians are also growing accustomed to being let down. Worse still for our political climate, they’re beginning to understand these pronouncements not as concrete targets or even worthwhile aspirations, but as nothing more than cynical, empty rhetoric.

Targets notwithstanding, Canada remains a top-10 emitter in the world per capita, and only nine per cent of our plastic waste is recycled. Immigration, which should be a monumental natural strength for our economy, is limited by shortages in housing, transit and health-care capacity.

These issues share a common “horizon risk” problem: they require fresh, long-term thinking to fix. Unfortunately, many of our leaders have demonstrated a distinct capacity for setting soaring targets. But let’s be clear: it is in marshalling resources, rallying public support and actually getting the job done that leadership is tested and revealed. Setting the target and issuing the press release is not the real work.

This problem is exacerbated by our small-ball politics. It’s been more than 20 years since a federal party has captured more than 40 per cent of the popular vote. In a first-past-the-post system with a fragmented information landscape, political parties aren’t inclined to swing for the fences, intent as they are on stitching together the smallest possible winning coalition. As a result, long-term policy ambition is ignored in favour of the quick (partisan) win.

Today, there is no greater example of this than the affordability crisis facing Canadians. Poll after poll confirms that people’s top priorities all relate to the immediate challenges of the rising cost of living. In response, our politicians have predictably narrowed their horizons. To their mind, the political calculus suggests one solution: respond only to those issues that can be addressed with short-term fixes.

They could not be more wrong.

It’s in times of great upheaval and change that developing and advocating for both short- and long-term political visions that carry considerable risk are actually most important and most palatable. The reason why is simple: it is precisely when the country’s back is up against the wall that the public is most open to giving policy-makers the latitude necessary to make things right.
In other words, the window of opportunity to take informed risks is right here, right now.

In her insightful new book, Mission Economy: A Moonshot Guide to Changing Capitalism, University College London Prof. Mariana Mazzucato asserts, “Policy is not just about ‘intervening’. It is about shaping a different future: co-creating markets and value, not just ‘fixing’ markets or redistributing value. It’s about taking risks, not only ‘de-risking’. And it must not be about levelling the playing field but about tilting it towards the kind of economy we want.”

This might be counterintuitive for a political class that has learned the wrong lessons from policy failures of the past: trying new things gets you in trouble, so the safer option is to not try new things. But it must be understood that the most immediate and potentially costliest risk facing Canada today is that we are not taking any policy risks at all.

Not in R&D, where we rank a pitiful 26th of OECD countries on R&D intensity, or in infrastructure, in which independent reporting estimates we have a deficit of somewhere between $110 and $270 billion. Not in tackling climate change and investing in green innovation, where we consistently fail to meet our international policy targets and have yet to fully articulate the aggressive policies needed to secure long-term environmental and economic benefits.

And not, overall, in the vision of any of our main political parties, which have failed to provide a coherent long-term plan for the future of our economy and the sustained well-being of our fellow citizens. None of these existential challenges will be fixed with new spending alone. All of them will require new thinking, and a willingness to take risks.

It’s time we recognize that myopia and risk aversion got us here in the first place, and that we will not meet the moment by tinkering at the margins of policy and programs. Our future prosperity demands that we embrace and reward risk in our policy debates, and that we do so now, before the window shuts for good.

“You cannot swim for new horizons until you have the courage to lose sight of the shore,” Faulkner once wrote.

Easier said than done. Today, we all know that courage is not optional. The pursuit of new horizons is a necessity that comes with new and deeper threats.

No matter your line of business, no matter the service you provide, the fear of “horizon risk,” that your plans don’t align with the timeline in front of you, is a familiar one. In the tumultuous cycle we’re in, with a perfect storm of new technology, shifting geopolitics, a collapsing traditional media landscape, and an energy transition the scale of which hasn’t been seen since the Industrial Revolution, most of our time horizons are shrinking.

But while the seas might be rougher, what lies ahead is in many ways more enticing than ever: untapped markets, improved productivity and opportunities more rewarding than your competitors can even dream.

We understand that leading and building trust through choppy waters comes with tremendous risk. But it also brings opportunity.

We swim every day in the waters where the ocean currents of opportunity and uncertainty collide. And in that ocean, where the waters are deepest, knowing when to forge ahead or steer clear requires a rapid and decisive assessment of risk.

In these pages, we offer the insight and analysis you need to make these assessments, from former ambassador to the U.S. David MacNaughton on what the prospect of Donald Trump’s return means for Canada, to the job-killing potential of generative AI, from the fractured media ecosystem, to the dangers of corporate “green hushing.” Issue #12 of Perspectives examines these pressing topics and, of course, much more.

I hope you’ll dive in.

To get to the heart of some of the many existential challenges facing Canadian businesses, we spoke to Dominic Barton, one of Canada’s proudest expatriates and a leading authority on global business. Barton is chairman of Rio Tinto and LeapFrog Investments, serves as chancellor for the University of Waterloo, and recently joined the Eurasia Group as a strategic counselor. He previously served as Canada’s ambassador to China and as global managing partner of McKinsey & Company, where he spent the majority of his career.  

Barton is known for helping some of the world’s top CEOs navigate challenging transformations and has provided advice to heads of government in Canada, the United States, Singapore and South Korea. Drawing on this experience, Barton helped us make sense of the “new form of globalization” he sees on the horizon, the probable recession and challenges for the environmental, social and governance (ESG) movement. Despite volatile social and economic conditions, he is optimistic about the opportunities that lie ahead for Canadians and Canadian businesses.  

 

At the outset of the COVID-19 pandemic, the rise of stakeholder capitalism captured the attention of investors and media alike. As we face an affordability crisis, has the pendulum swung the other way?  

We’re at an inflection point; there are just so many forces coming together at one time: technology shifts, economic power shifts, rising inequality, declining levels of trust, supply shocks and the war in Ukraine. Governments and businesses are worried about supply chain security. We’re moving towards a new form of globalization.  

We’ve spent a humongous amount of money trying to get through COVID-19. We’ve got an inflationary bogeyman that we’re all facing. It feels like the tanks are drained, patience is low and brittleness is high. People are frustrated.   

In university, I studied financial and economic crises and, like many economics students, I read Charles Kindleberger’s Manias, Panics and Crashes. He refers to the five-stage life cycle of a bubble. The fourth stage of this cycle sees insiders selling off their shares and the fifth stage sees outsiders running for the exits, causing a bubble to burst altogether. I think we’re somewhere between stage four and five. After an initial high with cheap borrowing and easy-to-access capital, nearly $11 trillion in stock market value has disappeared since the January 2022 peak. We’re likely going to have a recession; we’re going to have dislocation and we’re going to see unemployment go up. There are also political cycles, with governments seeking an evolving balance between national and global interests.   

You have to think long term. This can be a time when you actually build, when people are running for the hills. Think about investing in your competitive advantages, your talent, critical capabilities, including R&D, and your suppliers, as counterintuitive as that might be.

 

Can you elaborate on the new form of globalization you see on the horizon?  

Globalization is not going away. We’re not going to suddenly become nationalistic countries and stop importing and exporting. Consumers won’t put up with it. Companies won’t put up with it because they’ve gotten used to the efficiencies within the system that have improved our quality of living. Trade as a percentage of Canada’s GDP has increased three per cent from the global financial crisis and global trade nearly tripled from the beginning of the century to 2018.  

But there have been challenges since then. With more emphasis on supply chain security and countries like Canada and the U.S. embracing the concept of friend-shoring, it’s likely that we will see a reduction of trade in goods. 

Countries want to make sure they’re secure, and for good reason. For example, Ukraine accounts for half of the world’s neon production, an essential ingredient for the lasers used to make chips, but its two leading suppliers had to shutter their operations following Russia’s attack. This had immediate knock-on effects on the world’s chip-manufacturing capacity and the production of cellphones, laptops and cars. So there’s going to be conversations about identifying vulnerabilities and strengthening domestic capacity in certain areas.  

And there are trade blocs forming. You’ve got the Eurozone, you’ve got North America (USMCA). That’s a really important bloc. There is ASEAN (Southeast Asia) where there are 600-million-plus consumers in that economic region. You’ve got MENAP, which is Middle East North Africa Pakistan. There is sub-Saharan Africa. You’ve got the South American and Central Asian economies that are going to be doing more together. Right now, 75 per cent of our trade is in North America and we must broaden it and see how Canada is positioned in all these key blocs. 

It’s easy to overstate the decline of globalization, but what we can expect is a different type of globalization. There’s going to be more in the commercial services category – with people outsourcing work. And information will continue to flow quickly across borders through platforms like Facebook, YouTube and TikTok. There’s information that’s connecting people in the United Kingdom with people in Indonesia, on entertainment and e-commerce. In my view, we’re nowhere near the peak on that side.  

 

What can we learn about the way Canadian consumers and political leaders responded to the Russian invasion? 

The Russia situation has shown us that there are red lines in terms of international trade and commerce. Companies have to do the scenario analysis that asks what are our plans if we’re cut off and have to stop all trade and investment activity? What are we going to do when a critical ingredient we need for a solar cell or for a chip in a cellphone is not there?  

It’s one of the areas where banking regulators may be the most sophisticated in assessing risk because they say to banks: you have to be prepared for these tail risks – think about the “Taiwan risk,” for example. Even though the probability may be low, you have to be prepared. It’s not zero. Ten years ago, I wouldn’t even be thinking about it. 

 

Do you have any advice for leaders who want to focus on long-term goals while contending with intense short-term pressures to cut costs? 

You have to acknowledge that there are economic cycles and parts of those cycles are obviously deeply unpleasant. There are significant ups and downs. A lot of companies can go bankrupt and disappear. It’s serious.  

But if you look at the major crises that the world has gone through, like the Global Financial crisis of 2008-2009 and the Asian Financial Crisis of 1997-1998, there’s considerable research to show that companies that invested and were competitive in critical areas, like R&D, in the middle of these crises actually came out of them with better financial performance. In the middle of the crisis, their stock prices may have lagged compared with others who did not invest, but in the long run they were rewarded for investing strategically.  

If I think about Korea and Singapore in the middle of the Asian Financial Crisis, most foreign companies were shutting down, scaling way back or leaving the region, saying we’re done. It’s done. It’s all over. 

As a consultancy, Booz Allen held the top position in the Asia region in the 1990s. And they cut back when the Asia crisis hit. Our view at McKinsey was that Asia is and will be an important market over time despite those 1997 challenges. We wanted to be a relevant and significant player in Asia, so we actually invested and hired a lot of people, including many who were leaving Booz Allen. Now, McKinsey is the leading strategic consultancy in the region today.   

It’s one example of many, but it’s important to “look through the cycle” you’re in and see through it to actual opportunities. Senior management needs to be honest that it will be difficult. That you’re going to have to operate as efficiently and cheaply as possible. But that investing in priority areas will get you through the other side better positioned. It takes guts to do that.  

Having the strategic thinking to say this is going to be a pivot point where we develop a competitive advantage because we’re more focused, aggressive and disciplined than our peers. That’s what long-term companies are supposed to be. Warren Buffet is the epitome of this, right? Remember, he invested $5 billion in Goldman Sachs in 2008.  

At the same time, we have to ask: what are the cuts we each have to take? I’d rather meet with the executives and pare it back. We may need to suffer. That means no bonus. We’re going to cut the non-fundamental stuff. But don’t touch the core elements, particularly people, R&D and priority customer and supplier relationships.  

 

Has political polarization created an added challenge for the ESG movement? 

Since I’ve been at Rio, I’ve seen a bit of a shift. There was a lot of investor excitement and interest in ESG and our decarbonization goals. It’s sort of dropped down. People have said, imagine what your dividend would be if you kept met coal.  

I’ve explained that we didn’t because we’re committed to making a shift. We’re a 150-year-old company with a with a 20- to 30-year investment horizon and getting this right on climate is the right answer. So we will continue to aggressively pursue our decarbonization objectives. There are short-term costs, but we’re positioning ourselves to win the real war. I’m finding myself even more determined.  

The other issue is that different aspects of ESG can conflict with each other. They don’t all neatly go together. In Rio’s case, for example, we have been seeking a “win-win” compromise with local Indigenous leaders in Arizona on our Resolution Copper project. We know that respecting and working with host communities is imperative. 

We need this project because the U.S. and the world needs copper. If we don’t have copper, we’re not going to do the energy transition. Since humankind has been on the planet, we’ve produced 700 million tons of copper. If we’re going to meet the Paris goals, we’re going to have to produce the same 700 million in the next 20 years. The project makes sense from an environmental perspective, but obtaining the social licence takes continued work.   

My view is that you have to accept that an answer may not be perfect, but you have to have a point of view and go for it, and don’t let “perfect be the enemy of the good” because then nothing gets done. We’ll just sit here and be paralyzed and burn the planet down. That’s not acceptable. 

 

Picking up on that point, what role should mining companies be playing in the climate transition? 

They have a critical role. We won’t be able to do decarbonization without mining companies. A 1.5 MW wind turbine alone uses 1,900 pounds of copper. Electric vehicles use six times more critical minerals than conventional cars.  

So mining is critical, but it needs to do better to get the social licence. Even people who understand its importance don’t always want it in their backyard. The minerals are where they are, including some of the most remote parts of the planet. You have to work with that environment and engage with host communities in a responsible manner.  

At Rio, we want to be carbon zero by 2050. We want to reduce our own Scope 1 and Scope 2 emissions by 50 per cent by 2030, but we need to do a better job explaining what we do and why it’s important for the world.   

 

We’ve spoken about several challenges for Canadian businesses. What makes you optimistic?  

I see huge potential for Canada, especially in these times. When you look at what’s happening in the world — we’re eight billion people going to 10 billion. There is this long-term set of fundamental forces that are underway — technology, climate change, demographics, income inequality. I can’t think of a country that’s better positioned to deal with all this.  

You have to think about the water we have, the energy, the mineral resources. That’s one dimension. The second is the people. Our values are very global, multicultural. That’s a huge advantage in this tricky world. 

We’re a technology leader; we just don’t talk about it. Go back to Nortel, to BlackBerry. AI is something I’m very excited about because we have three global-class centres in Canada and I think we’re leaders. We have all the active ingredients, but we sometimes lack the ambition.  

Our political extremes are a hell of a lot less than what you see in the U.S. We shouldn’t take it for granted, but they’re a hell of a lot less. We’re a reasonable people. That matters over the long term. We have amazing pension funds that are truly world class. I’m just keen that we unleash these capabilities.  

I think, in Canada, we should have 50 leading global companies that are number one or two in their industries. Because that creates its own cycle: R&D, innovation, leadership development, talent development. Maybe because of our strengths we are complacent, but I go very long on Canada. 

Every night in Canada, 35,000 people experience homelessness. These are our neighbours, family members and friends, and the scale of the problem is increasingly hard to ignore. Recent data from Discover, Navigator’s research offering, shows that eight in ten Canadians believe homelessness has reached a crisis point. 

Gas prices are excessive, groceries seem to be getting more expensive and $5 no longer goes as far as it used to at Tim Hortons. But the issue of affordability runs deeper and connects to housing in a meaningful way. Stories of young couples not being able to afford their first home and students moving back in with their parents are commonplace. The demand for change is so strong that in the general election last year, a national non-partisan campaign called ‘Vote Housing’ was launched to mobilize Canadians and rally public support to address critical housing needs. Much like climate change, there is widespread concern for the issue, but little consensus on what to do. It is far too easy to slip into a mentality that homelessness and housing insecurity will always be with us. It doesn’t have to be this way. 

There is a growing chorus of voices shouting from rooftops that housing is a basic human right and to their credit, governments at all levels and politicians of all stripes are listening and acting. In fact, the current Liberal government has an aggressive national housing strategy, with a stated goal in the next 10 years of cutting chronic homelessness by 50 per cent and removing over 500,000 families from housing need. 

The private sector has an opportunity and a need to follow suit. Canadians increasingly expect their business leaders to contribute to the communities they operate in – helping employees and customers build meaningful attachments and identify common values rooted in shared commitments to safer, stronger cities. 

A recent survey released by the Canadian Centre for the Purpose of the Corporation, a Navigator initiative that equips businesses to make broader contributions to society, polled 500 senior executives across the country on corporate purpose. Of those surveyed, 63 per cent agreed that “The purpose of a corporation should be to benefit all stakeholders, including shareholders, employees, suppliers, the communities where it operates, and the environment.” While there are many deserving initiatives and outstanding national organizations with which to partner, nothing is more rooted in the health and security of the community – where your employees live, work and play – than homelessness intervention.  

Partnering with a homeless shelter also has the added benefit of alignment with government policy and direction in a way that can prove to be mutually beneficial. We should not be embarrassed by the fact that businesses can invest in ending homelessness. It is the morally right thing to do and it can help strengthen a business’ bottom line and reputation in the community. In fact, Discover research found that over half of Canadians agree that businesses should contribute to help combat the housing crisis. 

In addition to the immediate supports, such as food and bedding, there is also a growing trend among shelters to search for solutions to systematically end homelessness. This means more than investing in a safe place to sleep and eat. Increasingly agencies and shelters are focusing on skills and training, education and especially strategies to move people into housing, rather than providing stopgap, nightly solutions to homelessness. There is no need for a company to position themselves as the expert on ‘fixing’ the systemic problem. Rather, the shelters will work with experts and politicians towards this goal.  

Ending homelessness is an aspirational goal that might be solvable if we all work together. That doesn’t mean it will be easy, but having corporate Canada partner with government, along with the generosity of Canadian donors and well-intentioned agencies and shelters, provides a collective response to an issue that affects us all.  

*Matt serves as Board Chair for the Ottawa Mission, a charity dedicated to providing all the tools people need to rebuild their lives 

80% of Canadians believe our country has a crisis in homelessness. 

53% agree that businesses should contribute funding to help combat the housing crisis. 

After years of public health restrictions, uncertainty and fear, Canadians are enthusiastically flooding back to concert halls, venues and auditoriums. Enduring symbols of our country’s love for the arts, historic venues have undertaken extensive restorations to showcase their past and to meet the changing needs of the modern concertgoer. Here are three historic theatre revitalization projects that stand out. 

Toronto’s revered Royal Conservatory of Music has fostered young Canadian musical talent for more than a century. The Conservatory was founded in 1886 and in 1963 relocated to its current home on Bloor Street West. Its distinctive, Victorian red-brick hall was originally built in the 1880s and served as the original location of McMaster University until it moved to Hamilton in 1930.    

In the early 2000s, the Conservatory undertook an extensive restoration and construction project of its iconic building, led by KPMB architects, with the goals of strengthening its academic offerings and cementing its role as one of Toronto’s major cultural institutions.   

The addition of Koerner Hall, the renovation’s showcase auditorium, was of particular interest to performers and audiences alike. Opened to the public in 2009, Koerner Hall is a world-class venue offering concertgoers an intimate yet acoustically bold experience. Since its inauguration, Koerner Hall has welcomed artists like Yo-Yo Ma, Frederica von Stade and Midori.  

 The hall’s most notable feature is an undulating oak “veil” that cascades behind the stage, defining the Conservatory’s iconic image. Gently curving oak balconies hover over the audience, offering two tiers of uninterrupted sightlines. The curvature of the balconies contributes to the hall’s embracing acoustics. Koerner Hall’s modern exterior is in juxtaposition to the Conservatory’s original Victorian structure and allows visitors an expansive view of the nearby ROM Crystal and the University of Toronto’s scenic Philosopher’s Walk. 

Montréal’s historic Théâtre St-Denis was inaugurated in the heart of the city’s Latin Quarter in 1916. Originally designed for use as a French-language cinema, it eventually welcomed major international and Canadian acts, from opera singer Maurice Chevalier to the Orchestra of Milan under the direction of Arturo Toscanini.   

At its inauguration, the Théâtre St-Denis was the largest in Canada, accommodating more than 3,000 patrons. Throughout its history, the venue has undergone various crises of identity, most notably a permanent change in vocation from film to the musical arts in the 1980s.  

The current revitalization project, financed by owner Compagnie France Film and led by architecture firm FABG, will integrate the original theatre with Espace St-Denis, a burgeoning cultural and gastronomic hub home to a restaurant, piano bar and a multi-purpose performance space. The revitalization of Théâtre St-Denis’ main hall will commence in 2023. Its historic limestone façade, which was partially concealed by an earlier renovation, will be visible once again after the demolition of pre-existing structures.  

The new glazed foyer will reveal the theatre’s classic architecture at street level and promote inclusion and transparency in Montréal’s lively arts and cultural scene. The project is one of many recent investments in the cultural capital of Montréal’s Latin Quarter.  

The Vancouver Orpheum Theatre’s eclectic architecture is representative of the exotic phase of 1920s cinema in which it was born. Moorish, Spanish Renaissance and Baroque influences fuse to create an opulent setting for a variety of musical acts.  

Built in 1927, the Orpheum now serves as the permanent home of the Vancouver Symphony Orchestra and frequently welcomes other classical and contemporary performers. In the 1940s, the installation of the Orpheum’s now iconic neon sign cemented the historic landmark’s location in the 800-block of Granville Street. 

In response to the significant economic downturn faced by Granville Street’s entertainment sector during the pandemic, architecture firm Perkins and Will, alongside developer partners, have filed a rezoning application for an ambitious redevelopment of the 800-block of Granville Street.  

The proposal is highly contentious amongst Vancouverites; some people are concerned about its proportion of modern elements. The architects envision a juxtaposition between old and new, celebrating the Orpheum’s history through the preservation of original façades and the addition of amenities to support the theatre’s viability.   

 The addition of flexible office and hotel space is intended to boost economic prospects for the struggling entertainment area. Public hearings on the proposal will be held over the next year.