How will Canada be a part of the knowledge economy?

by on May 2, 2015 at 3:09 am in Current Affairs, Economics, Education, Web/Tech | Permalink

Me:

Some economic sectors are distributed everywhere, like every city has its dentist[s], and other sectors are quite clustered. Banking is pretty clustered — New York, London, Hong Kong. Tech has been evolving in a pretty clustered way; I don’t mean simple software support, which is more like dentistry, but big, grand projects — the next Google, the next Facebook, Uber. We see those come out of quite a small number of places, so Skype coming from Estonia is quite the exception. Even then, it was improved by people in the clusters.

I think any location, not just Canada, has to ask itself, ‘are we going to be one of those clusters or not’? And the correct answer may be ‘no’. It may also be the sector evolves so it’s less clustered and more like dentistry, and then everywhere including Canada would partake. But maybe the future is Canada will have a knowledge sector doing small-scale things like software design for local projects but not anything like its own Silicon Valley. I guess at this point that seems likely — that Canada will not be a huge innovative part of the knowledge economy.

That is from my interview with the excellent Eva Salinas, mostly about other topics, such as what a great egalitarian age we live in and also where the World Bank and IMF stand, among other issues.  A few of the comments make more sense if you know that the interviewer is Chilean and we were discussing Chile before the formal interview started.

1 edeast May 2, 2015 at 3:47 am

How then should a Canadian live?

2 Steve Sailer May 2, 2015 at 4:30 am

It’s fascinating what an utter failure the Information Superhighway has been at diversifying where people can live.

3 Nick Rowe May 2, 2015 at 5:24 am

Like the first words spoken by telephone: “Mr. Watson–come here–I want to see you.”

4 ramesh May 2, 2015 at 8:06 am

Is that why outsourcing is a billion dollar industry??? What about the new distributed teams a lot of software/knowledge firms are starting to try out? What about those that freelance for first world rates while living in sunny locales arbitraging the first world salary – third world cost of living?

Has it diversified where everyone can live? Of course not… yet. VR might be the next big thing.

I suggest you read Snow Crash by Neal Stephenson and then try the Oculus Rift headset.

5 Lord Action May 4, 2015 at 10:34 am

+1

This might be the weirdest fact about the internet era.

I understand how people want to live in nice places, so nice places should still be popular. But why aren’t more of the people living in suburban Boston now living in Vermont?

6 Millian May 2, 2015 at 5:38 am

Every city has its banks too. Some types of bank activity are clustered; others are as universal as dentistry.

Industries are distributed when the expertise is scientific and replicable. Industries are clustered when the expertise is proprietary and rival, or in the most extreme case when there is no real expertise to speak of, but merely interpersonal relationships. Thus we see the gathering together of investment bankers, of defence contractors, and so on.

Comparing America as a whole, which is host to many clusters, to Western Europe which seems to have fewer clusters, the welfare of the people outside the clusters does not seem to be very different.

Wasteful competition for the rents of the clusters is rising, Even the winners pay by enjoying a worse quality of life than their forebears would have.

If we are truly entering a world that combines open democracy, growing monopolistic rent-seeking, fiscal pressure, rising living standards and rising inequality, I do not think that for much longer the clusters will avoid being taxed by their hosts.

7 Millian May 2, 2015 at 5:44 am

Also – is this the closest we’ve come to a non-Straussian Cowen?

– And if Germany could be bigger, richer, in a way a bit more of a bully, in a way that would run better.
– To whose benefit?
– Well Germany would do it selfishly as indeed they do now. But it’s better than no governance at the centre.

– This is your idea that it is better to have some stability with control in the hands of a few?
– It is my opinion but it’s never going to be popular.

8 Nick Rowe May 2, 2015 at 5:44 am

Tyler: I think some Canadians will say we already have our “knowledge economy” clusters. Waterloo (Kitchener) and Kanata (Ottawa) spring to my mind. But others will be better than me at comparing them to US clusters.

9 Engineer May 2, 2015 at 4:25 pm

Kanata is nice, but isn’t remotely comparable to San jose, Tel Aviv, Bangalore etc. Kanata lacks the energy of the latter places, seems to revolve around the carrion of Nortel, and (I was told) has few startups.

10 John B May 11, 2015 at 9:50 am

Certainly if you look at the amount of Venture Capital (raised and invested) Canada lags well behind Boston and Silicon Valley, perhaps also other areas.

11 John B May 11, 2015 at 9:50 am

Nick

In fact, the ‘knowledge economy’ cluster might be Greater Toronto Area. You have a huge number of software and tech businesses, many serving the banks (Algorithmics for example came from Toronto, I believe).

And you have a medical research and development cluster.

Hamilton, interestingly enough, is there in computer animation.

12 Chip May 2, 2015 at 6:11 am

One prerequisite for a knowledge economy may be an initially affordable cost of living to attract the penniless but innovative young people.

Vancouver and Toronto are horrendously expensive places for housing. Ontario is further plagued by statist politicians who are speeding toward a debt crisis.

13 Nick Rowe May 2, 2015 at 7:43 am

Maybe Vancouver and Toronto have expensive housing because people want to live there. Never reason from a price change.

14 ramesh May 2, 2015 at 7:57 am

Have you seen the housing prices in Toronto or Vancouver compared to NYC or SF??? Toronto has a relatively low cost of living compared to other big hitter cities! Of course its higher than the middle of no where Canada but there would be no jobs in the middle of no where Canada.

What do statist Ontario pols have to do with Vancouver? Me thinks you’re one of those whiny Canadians that just likes to whine about everything LOL

15 Joe Q. May 4, 2015 at 11:27 am

While comparing housing costs in NYC or SF to Toronto or Vancouver, be sure to also compare salaries as well.

In Toronto the average detached house costs about C$1,050,000, the average semi-detached house around C$720,000. Median family income is around C$70,000. The home-ownership rate is in the 50-60% range.

The contrast in Vancouver is even more stark (detached houses around C$1,300,000 on average, family incomes slightly lower).

The CAD-USD exchange rate fluctuates over time, but currently C$1 is worth about US$0.83.

16 John B May 11, 2015 at 9:54 am

Vancouver you have the Pacific factor: James Suorwieki in the New Yorker had a piece on Vancouver. It has become a haven for global capital flows, despite the relative weakness of domestic industry.

Probably Toronto you have a bit of that, plus an old fashioned property bubble. The GTA gets a disproportionate share of newcomers to Canada, and people moving within Canada. The greenbelt restriction (the moraine) has hit homebuilding. That plus infrastructure issues (basically mass transit and road systems at capacity) has driven up housing prices in commutable areas, v. less commutable ones.

The (new) median family in Toronto, and perhaps even GTA, won’t be living in a house. They’ll be living in a condo. In the same way that Manhattanites don’t live in houses, and neither do Hong Kongers.

17 Moreno Klaus May 2, 2015 at 6:22 am

Climate in Canada is simply too harsh…you can not ignore that fact.

18 Nick Rowe May 2, 2015 at 7:48 am

But 35 million people live there anyway. And they are not all in the fur trade. “Knowledge economy” is nice indoor work, which would presumably have a comparative advantage in an unpleasantly cold climate. And it’s mostly older retired Canadians who winter in Florida.

19 Slocum May 2, 2015 at 8:22 am

Not the populated parts. When you cross from Michigan into Ontario at Detroit you’re going south. Toronto is about the same latitude as Milwaukee, Ottawa and Montreal are about the same as Minneapolis. Vancouver is much farther north, but has a mild, oceanic climate like that of western northern Europe.

20 zbicyclist May 2, 2015 at 10:52 am

Vancouver has similar weather to Seattle and probably overall better weather than any place in my next sentence.

Is the weather in Toronto and Montreal really harsher than Chicago, Boston, Cleveland or Minneapolis?

21 Moreno Klaus May 2, 2015 at 11:58 am

Isn’t Vancouver the city with highest average rainfall in the world or something like that??? Naah, I am definitely not moving there. Minneapolis… I have been there, climate is terrible and the city is far from beautiful…. also a no go.

22 Wilbur May 3, 2015 at 1:18 pm

Toronto weather is similar to Chicago and maybe Cleveland. Cleveland gets lake effect snow so that’s not fun. Toronto doesn’t.

Montreal winters are cold and long, but not as cold as Minneapolis.

Boston is the warmest of the bunch (eastern seaboard weather).

So in terms of weather comfort, I would rate them like this (most to least comfortable): Boston > Chicago > Toronto > Cleveland > Montreal > Minneapolis

23 John B May 11, 2015 at 9:46 am

I wouldn’t put Chicago’s weather as more tolerable than Toronto?

-40 in winter in Chicago (at least with windchill). 35 (mid 90s) in summer. Sheesh.

24 John B May 11, 2015 at 9:57 am

Depending where you go, it’s not worse than Moscow, St Petersburg, Stockholm, Copenhagen, Oslo, Minneapolis, Chicago, Boston, New York. Toronto Montreal Calgary Vancouver all have liveable weather.

It doesn’t seem written in stone that a cluster has to be somewhere warm. Isn’t Phoenix AZ’s main business real estate?

Another factor is climate change. The Arctic is one thing, but the inhabited belt of Canada is probably an unambiguous winner from rising average temperatures– the benefit in winter exceeds the costs in summer (it won’t hurt Toronto to be 2 degrees C hotter in summer any more than it hurts Houston to be hotter than Toronto, now). Only major issue is rainfall on the Prairies, but increasing frequency of massive downpours etc. in the East.

25 Ignacio May 2, 2015 at 8:34 am

Can you share a bit of what you talked about Chile? If you have been following the latest developments here (in Chile), it may interesting to hear your take.

26 Slocum May 2, 2015 at 8:42 am

I think the great stagnationist is missing the pending stagnation in tech clusters. So many device categories have reached maturity and their advancement has plateaued: laptops, digital cameras, tablets, smart phones, game systems, flat-screen TVs — no significant advances in any of these for years now. The ‘bleeding edge’ devices (VR goggles, smart watches) don’t appear any more likely to end up being hits than 3D televisions or Google Glass did. The same is true in software. We’re in an era that you might call ‘the great repackaging’ — the same functionality as before (actually probably less) but now ‘in the cloud’ instead of as a locally installed program! Or as an app instead of a web site!

27 Nikki May 2, 2015 at 10:13 am

Casual observation suggests children trying to impress other children are a major driving force behind tech’s popularity, so smart watches are a better bet than 3D TVs. If you bring a shiny new toy to school, it’s not like the other 12-year-olds are going to shrug it off because it has no new functionality. Unless values change fundamentally and coolness is uncoupled from owning stuff you would not be interested in if it did not buy you attention, repackaging will remain profitable indefinitely.

28 ChrisA May 2, 2015 at 9:32 pm

What an amazing comment!

How old are you Slocum? I still think of smart phones and tablets as a brand new innovation! Even laptops are still pretty amazing to me (I am 49), when I compare to the computers of my youth.

As to VR goggles, the first practical ones are just a few months old and there are no consumer products yet – how can you know they are going to be failures?

Your point on software is maybe more substantive. At the moment software creation is the ultimate craft industry. It seems very hard to make it an industrial process (are you listening Microsoft). So software is stuck in this place where easy problems are solved very fast, but no-one know how to scale up things to solve the hard problems. But I take heart from the fact that the human brain is actually very simple as evidenced by the fact that the genes for the brain can fit on an old style floppy disc.

29 Slocum May 3, 2015 at 1:24 pm

“How old are you Slocum? I still think of smart phones and tablets as a brand new innovation! Even laptops are still pretty amazing to me (I am 49), when I compare to the computers of my youth.”

I’m about the same age. And I don’t disagree that all these things I mentioned ARE amazing (and huge advances over what we had when we were young). BUT…none of these kinds of products are advancing rapidly any more. I wish they were! But they’re just not. Manufacturers are really struggling to find compelling features to add (no, I don’t really want a fingerprint scanner) and equally struggling to find compelling new product categories.

30 Prakash May 4, 2015 at 2:36 am

A small note on enterprise software.

Moving enterprise software to the cloud is not a small thing. I work in a company that is an oracle shop. (uses oracle e-business suite predominantly). Upgrading to a new version of the software was a PROJECT, a well considered, well planned, multi month project. On the other hand, from what I hear about workday, they do biweekly upgrades of their software versions, for all their clients. I shudder from thinking about the speed that brings. EVERYTHING changes if functionality upgrades could happen at that speed.

31 Jer May 2, 2015 at 9:01 am

Canada’s success in a highly-educated, technology- and innovation-driven industry will be based on maintaining excellent communications and traditional-roadway infrastructure between nodes of community services. Any advanced industry that can be run out of generic cubicles and a high-end communications/networking collaborative system can be decentralized into small branch centres and home-networked. I am not talking about call-centres and telemarketers. Engineering firms, accountancies, legal, financial, etc., can all be de-concentrated away from Toronto, Vancouver, Calgary, and Montreal to where the heavy mental lifting is done – where professionals live or live near to – small suburbs, far flung communities, and highly-concentrated urban neighbourhoods – otherwise expensive or unappealing office locations. Clients/ inter-meetings can be met/held at nodes or designated ‘reception’ centres. Deliverable production and training/internships can be focussed on low-rent suburban mid-rise office space. Future national and international firms of this type may have dozens or hundreds of branch offices and support centres. For better or worse, Canada’s big cities are becoming cultural centres rather than services’/ commercial HQs and certainly beyond industrial/retail meccas or bedroom communities. These core cities have become the new family rooms of the country – absolutely essential but hard to define. The key is to maintain world-class and near-world-class int’l airports, highways, and communications between these hubs and branch groupings – this could mean more ring toll roads and exclusive airline airports – necessarily uncompetitive and elitist entities. A good start would be to de-centralize universities and government offices/services. One might look to scandinavia, scotland, and parts of Japan to see how High Tech works in a rugged and dispersed country of middle class, highly-educated, and culturally-flexible professionals. I fear for others who are not so educated, flexible, experienced, or cultured towards a more communal-artsy existence.

32 Swanollo May 3, 2015 at 10:45 am

A good start would be paragraph breaks.

33 Hazel Meade May 2, 2015 at 9:33 am

One thing I discovered that was really wierd – it’s kind of hard to buy stuff off Amazon or Ebay and have them shipped to Canada. You have to go to the “Canadian” Amazon or Ebay, where the prices are higher. Why is that? I thought we had a free trade agreement with them.

34 prior_approval May 2, 2015 at 10:38 am

Maybe Amazon didn’t read the fine print (or better said, it examined the fine print carefully), and prefers the extra margin?

35 Harun May 2, 2015 at 3:23 pm

Amazon rolled out Prime in Canada. This means Canadian warehouses, Canadian taxes, etc. There is no “extra margin.”

In fact, I participated as a 3rd party seller to Amazon Canada, and it was okay until the Canadian government asked for a corporate income tax for my US based company. (Europe never does this as we are non-resident.) Canada’s governmental forms are usually very easy and much better than America’s but their corporate income tax form was too hard to do without tax advisors.

They charged $1,200 for the return.

Meanwhile, total sales in Canada were maybe $20,000…

Yeah…there goes your margin completely. Therefor I am leaving the Canadian market unless I can find a cheaper way to handle that tax.

(Tax itself was low – literally enough to buy some pizzas.)

36 Harun May 2, 2015 at 3:19 pm

First of all, Canadian taxes are higher as are other taxes, which makes products sold there slightly more expensive.

Secondly, Canada has a regime of import duties designed to make cross-border internet sales very difficult. This is on purpose, because as you say, supposedly we are a free trade area. That may be the case for Made in USA or Made in Mexico, but if you’re shipping made in China items, the duties appear again. Often the import duties make any price savings disappear. That also means every shipper has to use a customs broker fee.

Canadians often get upset about this and blame America, but really its their own government.

37 Joe Q. May 4, 2015 at 11:32 am

Were those import duties really “designed to make cross-border internet sales very difficult”, or is that merely a side-effect?

Our free-trade agreement covers the USA and Mexico (no import duties on items manufactured in those two countries). As you point out, it does not cover items made in China and shipped to Canada via the USA. It surprises me that people do not recognize this.

38 derek May 2, 2015 at 9:59 am

No one has yet mentioned the obvious block to Canada becoming a tech innovation powerhouse.

The punitive taxation of stock options. They are taxed at the book value. So if you get a bunch of stock options in June, and December 30 they are worth $300,000 you are taxed on that amount as income. No matter if by January 10 a bug that eats puppies is discovered and and your stocks are worth pennies. I am not a taxation specialist in any way, but if your employer in Canada is offering stock options as a bonus, check with an expert. You could be bankrupted.

This unfortunate reality put a quick end to the attempted duplication of Silicon Valley in places where the talent and ideas were available.

Now the Ontario government has to offer subsidies to attract large high tech firms.

39 Alain May 2, 2015 at 2:59 pm

You are going to have to explain how that is different than in the US.

40 derek May 2, 2015 at 3:06 pm

Capital gains are usually taxed when the gains are sold. Do you pay taxes on stock options if they are not sold in the us? A quick perusal tells me that if it is done a certain way it isn’t. If you sell them it is taxable income, of course.

41 John B May 11, 2015 at 9:57 am

Derek

That’s very interesting. Thank you.

42 Sol May 2, 2015 at 10:30 am

Any idea what percentage of tech development actually happens in Silicon Valley? I develop CAD software libraries for other programmers to use when they are developing CAD software. My physical location is completely irrelevant to my work, I started my company in a town of 5000 people 30 minutes from the nearest (small) city, and live in a small city an hour north of Flint now. My customers are located all over the world. I don’t know the location of every customer, but to the best of my knowledge none of my customers (remember, they’re other software developers) are located in Silicon Valley. Outside of business, very few of the developers I know are located there, either.

43 sp6r=underrated May 4, 2015 at 6:47 pm

What kind of hope does that leave those who can’t even make it that far, is that view pessimistic?

It’s sobering, but service sector jobs are the hope.

Do you see growth in that sector or investment in education for it?

I’m not sure you need education. You need a willingness to learn and a good temperament. Someone will work in this [cafe], they don’t need a lot of education. They may never get a raise, but over time, new stuff will be invented and they will have it in their lives.

_____

I agree with the other poster that this is a shockingly non-Straussian Cowen. He is open that for the majority of the population in the developed world they have no chance of receiving a raise in the global economy and that he considers education for them to be an economic waste. Their future is being 21st Century serfs for Mr. Cowen and his beloved capitalist class. Oh what a utopia.

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