July 1, 2008 / 1:18 AM / 9 years ago

Commodity boom blinds Canada to problems: report

OTTAWA (Reuters) - Canadians shouldn’t be fooled by high commodity prices into thinking their economy is on the right track because, in fact, it is slipping badly in comparison with other rich countries, a report said on Monday.

The Conference Board of Canada’s 12th annual report comparing Canada’s performance with 16 peer countries painted an unsettling picture of a nation that has become a laggard when it comes to innovation and productivity.

The economy could be doomed to a hard landing when the commodity boom expires unless the right public policies are put in place, it suggested.

“While Canada is still in the gifted class among nations, its report card tells the story of a country moving to the back of the class,” the board’s report said.

“That’s a hard argument to make in a country enjoying low unemployment, a strong dollar, declining debt and a booming resource economy. If everything’s so bad, why does it feel so good?” it said.

Canada ranked in the bottom half in five of the six categories analyzed: economy, innovation, environment, education and skills, health and society.

The report rips into what it calls “myths” about Canada having one of the best standards of living in the world and being a leader in science and technology.

“The BlackBerry is the exception, not the rule,” it said, referring to the popular smartphone created by Waterloo, Ontario-based Research In Motion and sold around the world.

Canada ranked 11th out of 17 on economic performance compared with third in the 1970s, based largely on data from 2006 and 2007. The Conference Board gave it a “B” grade for this year, but it said the average grade was a “C” for the 1990s and 2000s. The improvement this year was due to a strong fiscal surplus, high commodities prices and tame inflation and unemployment rates.

Improving productivity and attracting more foreign direct investment, a driver of growth, could help close the prosperity gap with the United States, the report said. Canadian per capita income is 83 percent of that in the United States, down from 90 percent in 1980, the report said.

The Conference Board endorsed a report by a high-profile business panel last week that urged Ottawa to ease foreign investment restrictions in telecommunications, airlines and uranium mining, calling it a “push in the right direction.”

Perhaps the most damning aspect of the Conference Board study was its critique of government policies, or lack thereof, on innovation.

Industrial policy appears designed to “shore up fading oldsters” including automakers, forestry and manufacturing -- the sectors hardest hit by the U.S. slowdown -- instead of generating new, innovative industries, it said.

“Canadian companies are thus rarely at the leading edge of new technology and too often find themselves a generation or more behind the productivity growth achieved by global industry leaders,” it said.

Reporting by Louise Egan; Editing by Peter Galloway

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