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April 7, 2014

Canadian Manufacturing: Are we missing an opportunity to catalyze a revival?

Much has been made about the decline of the manufacturing sector across OECD countries, and Canada is no exception. Since the 1970s manufacturing’s total share of employment in Canada has dropped precipitously. Other countries, such as the United States and the United Kingdom, have seen similar trends.

Employment share, of course, does not tell the whole story. And indeed, some now argue that the decline of Canadian manufacturing is largely mythical, pointing to productivity growth as a primary cause of the sector’s employment share. Recent work has pointed to rising commodity prices as well as structural factors as contributing to the sector’s decline.

Still, much discussion continues to centre on the sector’s historical decline in advanced industrial countries.  This claim is buttressed by the sector’s overall declining share of manufacturing activity as a percentage of GDP.

Recently, however, the sector has seen some good news stories in both Britain and the United States. In both countries, the manufacturing sector appears to be experiencing a renaissance of sorts. Researchers and commentators have now begun pointing towards a trend to “re-shoring” or “on-shoring,” indicating that companies which have out-sourced manufacturing activities to lower-cost jurisdictions are beginning to bring some of those activities back home. These trends have created a new optimism about the future of the manufacturing in the US and the UK.

Similarly optimistic sentiments are now starting to emerge in Canada, though the picture here is considerably more mixed. Canadian manufacturing sales remain well-below their pre-crisis high, and declined again in 2013. Still, some analysts have pointed to reasons for optimism about the sector’s future moving forward through 2014.

In this context, it is worth considering what other countries are doing to enhance and consolidate positive trends within the manufacturing sector. Both the US and the UK have now adopted strategic plans to enhance domestic manufacturing over the coming decade. In the UK, the coalition government has called for a “march of the makers” to strengthening British manufacturing to counter-balance to country’s growing dependence on services and, particularly, the financial sector. A core pillar of the UK strategy is the creation of a series of applied research centres, dubbed the High Value Manufacturing Catapult.

Similarly in the United States, President Obama has successfully pushed for the establishment of two high-tech manufacturing hubs in Youngstown Ohio and Raleigh North Carolina. The Youngstown hub, dubbed the National Additive Manufacturing Innovation Institute, is focused on capturing advances in 3D printing technology. The more recently established centre in Raleigh is focused on energy efficient chips. In his 2014 state of the union address, the President called for the creation of six additional hubs across the US.

Both the British and American manufacturing hubs are based on a similar model, inspired by the long established and successful German system of Fraunhofer Gesellschaft research institutes. The centres, which have been established as partnerships between government, industry, and the university sector, are intended to help build collaborative networks and strengthen the potential for cooperation among the partner groups. Supporters of the Catapult within the UK, for example, argue that the centres can work to:

Tie all of the members of the UK supply chain together – from the global original equipment manufacturers (OEMs), prime contractors (primes) and tier-one suppliers providing both expertise and investment, through tier- two, three and four suppliers, to academia.

 

Particularly important is the connection of business to ongoing research within universities. Though universities across the OECD have created technology transfer offices in recent years, many barriers remain for businesses – particularly small and medium size enterprises – to engage productively with higher education institutions. Initiatives such as the High Value Manufacturing Catapult and the National Additive Manufacturing Innovation Institute can play an important role in closing this gap.

In establishing these centres, policymakers in in the US and the UK have recognized that the manufacturing sector has fundamentally changed. If growing optimism about the sector’s future is to be maintained, it is vital that countries work to capture and retain the type of high-tech manufacturing industries which will power future growth.

Here in Canada, we should watch these policy initiatives closely. It is notable that both the federal and provincial governments have made small steps towards following the lead of the UK and the US. Broader strategic direction, however, remains lacking.

We need to broaden the debate on the future of manufacturing in Canada and the type of sustained policy support which may be needed. Some will certainly argue that the government should not provide sector-specific support, and that efforts to support the manufacturing sector in Canada are fundamentally misplaced. If Canada does not at least engage with this discussion, however, we risk being left behind in the race to develop the types of strategic partnerships and infrastructure necessary to create a dynamic, high tech future for our country’s manufacturing sector.

 

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