The Importance of Growth

Of the current issues facing the Canadian economy, the biggest of them depend on how Canada’s trade negotiations with other countries settle. The Comprehensive Economic and Trade Agreement (CETA) with Europe, for instance, creates enormous potential for Canada’s export-oriented industry to expand. In Atlantic Canada, however, there could be severely negative consequences if the provinces fail to take steps that bolster economic growth and attract new talent to the region. The new method of determining health transfer payments, which focuses on population and GDP, is just one illustration of how important economic and demographic development is in Eastern Canada.

Canada’s economic success is rooted in exports, and the export-industry, which is composed primarily of natural resource extraction, has an opportunity to not only supply other countries with raw materials and manufactured goods, but also value-added products. Reducing and eliminating barriers to trade with the European Union (EU) will likely benefit key economic sectors, such as energy, manufacturing, and seafood, and freer trade between Canada and Europe will encourage domestic economic activity, as it expands the market available to Canadian industry. The EU is currently Canada’s second-largest trading partner–behind the United States–and, in 2012, exports to Europe totalled $41 billion. However, it is critical that Canadian industry remains competitive in foreign markets and focuses on value-added products, as well as supplying factors of production. In fact, CETA eliminates protective barriers that currently prevent Canadian industry from exporting value-added products into Europe, and vice-versa, which levels the competition, in addition to providing an opportunity for Canadian-EU businesses to produce the most desirable products.

CETA also creates enormous potential for the Atlantic Provinces to expand the agriculture and seafood sectors into the EU, but they face significant demographic challenges that could restrict new prospects. In the last several years, Atlantic Canada’s population has declined and the average age has increased dramatically. In 2011, roughly 16 per cent of Atlantic Canada’s population was aged 65 or above, compared to 14.4 per cent of Canada’s entire population, and by 2036, Statistics Canada expects it to be around 29.1 per cent (compared to 23.7 nationally). Furthermore, Canada’s labour force increased by 1.1 per cent between 2012 and 2013, however, Atlantic Canada’s increased by half that amount, which is due in large part to an outflow of young individuals and families and an influx of retirees. As a result, the region is not equipped to attract large-scale industry, especially compared to British Columbia, Alberta, and Saskatchewan, and has contributed much less than other regions to Canada’s GDP in recent years. This is an important caveat, considering the federal government will begin calculating the Canada Health Transfer using population and GDP in 2018. If the Atlantic Provinces fail to generate economic growth and attract newcomers, they will receive less than other provinces to fund their healthcare systems, which will become more cumbersome in the future due to an ageing population and declining tax base.

In coming years, these two developments–freer trade and the new healthcare funding mechanism–will play a large role in determining Canada’s economic prosperity and the viability of its healthcare system. Canada’s export sector and healthcare system are rooted historically in the country’s history and it is unclear what changes will materialize because of modifications to them. In any case, the Atlantic Provinces need to take measures that bolster economic growth and attract new talent, both of which will allow them to take full advantage of CETA and other free trade agreements and create a sustainable source of funding for their healthcare systems.

Rachel Lowe is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute

Competing to Stay Alive

The notion of cross-border shopping is nothing new, especially during the holiday season. For decades, Canadian retailers have lost customers to the United States. The rationale behind travelling to the United States to cash in on pre-holiday deals, however, is changing and so, too, is the strategy to keep Canadians shopping at home.

Retailers in the United States are generally able to offer a greater variety of goods to consumers at a much cheaper price than Canadian retailers. The precursor to the holiday shopping season, colloquially known as Black Friday, accentuates this disparity. Retailers dramatically reduce prices, stores open early, and customers travel from afar to wait in line for hours.

In 2012, the amount of purchased goods allowed to enter Canada with duty-free status increased dramatically. These new allowances encourage Canadians to take advantage of the aforementioned price disparity (which, however, is shrinking). Furthermore, a strong Canadian dollar makes shopping in the United States an even more attractive option, especially for those who live closest to the border.

Canadian retailers, as a result, lose profits because of fewer customers choosing to shop locally and many find it necessary to lower prices in order to stay competitive and remain in business.

To combat this issue (and the economic recession), Canadian retailers introduced their own Black Friday deals. This year, however, proved the most comparable yet to the United States Black Friday tradition. The Bank of Montreal’s 2013 Holiday Spending Outlook (conducted by Pollara), for example, reported that 47% of Canadians planned to shop on Black Friday this year, up from 41% last year, and 59% of Canadians plan to shop on Boxing Day this year, down from 62% last year.

Pre-Christmas bargains are evidently gaining popularity in Canada, however, Boxing Day sales, which typically account for the largest proportion of retail sales in the year’s last quarter, are taking a hit. In an attempt to stay competitive, Canadian retailers are mimicking American retailers by reducing prices and restructuring sale targets and timing. This year, for instance, retail stores and shopping malls across the country offered huge discounts, door-crashing specials, and, for some, extended hours to tempt shoppers to spend on Black Friday deals in Canada, instead of the United States.

Copying American traditions by targeting Black Friday over Boxing Day and reducing prices to stay competitive are essential if Canadian retailers intend on surviving. In addition to the profits retailers gain from introducing Black Friday, Canadian consumers have a greater chance to save on holiday spending without leaving the country. While there are several other issues to consider, the direction in which Canadian retailers are heading is, for now, clear.

Nevertheless, this rapidly evolving strategy has left me questioning how much the Canadian Black Friday will prosper. Will the friendly Canadian reputation be at risk from the same type of crazed consumerism witnessed in the United States? On the other hand, is it possible that online shopping presents the next challenge to both Canadian and American retailers?

Rachel Lowe is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute

Questions About Drug Patents

The Canadian federal government recently announced the ratification of the Comprehensive Economic and Trade Agreement (CETA) with the European Union. While free trade enjoys near-universal support among economists, so-called ‘free trade deals’ do not always contain exclusively free trade policies and controversies occasionally arise.

In this case, one of the most contentious provisions of CETA involves the extension of Canadian patents granted to European brand-name drug companies, relating to the rights of sale of such drugs in Canada.

Over the next several weeks, I hope to explore the issues surrounding pharmaceutical patents in a series of blog posts. I hope to arrive at a clearer understanding of the fairness, effectiveness, and legality of intellectual property as it applies to the Canadian pharmaceutical industry. Today, I wish simply to enumerate my questions to act as a springboard for this investigation.

The traditional interpretation of the policy environment pertaining to pharmaceutical patents goes something like this: “Drug companies are motivated, among other things, to make profits and reduce their exposure to losses. Research and development in the pharmaceutical industry can cost billions of dollars per drug. Therefore, to ensure profitability and a steady supply of life-saving drugs, a company must be granted a temporary government-enforced monopoly over the sale of their new drug. It is sometimes OK to nullify a patent after a certain amount of time, to let generic drug manufacturers enter the market and drive down the price of the drug.”

Some questions I have for this narrative include:

1) Is the concept of “Intellectual Property” justified? What is the origin and function of property rights? How does this apply to non-material goods such as patents?
2) Is there really insufficient incentive for R&D without patents? Can non-patentable research be profitable? What does the empirical evidence say about this in relation to employment, investment flows, and production within the pharmaceutical sector?
3) Is the patent-granting process susceptible, like other government licensing schemes, to cronyism and the picking of winners and losers?
4) During the lifespan of a patent, what is the monopoly price-setting strategy of the brand-name drug company? How does this affect the purchasing power of insurers to honour their contracts and provide drugs to their policyholders?
5) If the above narrative is true, is there an “optimal patent length”?

Answering these questions should lead to a better understanding of the processes that Canadians rely on to help fight and prevent disease. Competing interests in this story are many, and include governments, consumers, private insurers, researchers, generic drug manufacturers, and brand-name pharmaceutical corporations. Be sure to check back here as I wade through these ideas of pills and patents.

Mike Craig is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute