Leadership in manufacturing: The government’s role

BY PAUL HOGENDOORN

My last three columns have focused on the need for true leadership in manufacturing companies today. Leaders not only lead the way in times of challenge or change, they must sometimes first find the way, set the right course, and then inspire and encourage the rest of the company with a clear, convincing and unifying vision. The focus of this column, however, is on the leadership, or lack thereof, of our governments in these times of change and challenge in our manufacturing sector.

Many say that true leadership must come from our companies and industries, and that anyone counting on leadership from government to either fix their competitive problems, or at the very least, buy them more time to do so, is misplacing their hope. I tend to agree that the leadership required to navigate through this
period must come from within our industries and individual companies. Governmentsí strengths and roles are more related to regulations and following the will of the people, rather than leading. But still, there is a leadership support role for governments to play. They can create and foster a business and tax climate that supports investment, innovation and risk-taking in our manufacturing industries, or they can continue to make the same mistakes that some of the larger and more slow-footed automotive companies have been making by holding on to old paradigms and business models for far too long.

Some of the recent decisions by the Ontario government in particular are concerning. This is a jurisdiction that owes its economic well-being throughout most of the last century to the manufacturing sector, yet its decisions and policies do little to support or encourage manufacturers in these challenging times. In some cases, the governmentís decisions and policies actually hinder or discourage manufacturers. Take Bill 144, for example. The Canadian Federation for Independent Business, the Canadian Manufacturers and Exporters, and the Ontario Chamber of Commerce all petitioned against this union-favouring legislation on the grounds that it could discourage new automotive manufacturing investment in the province at a time when it appears that the traditional Big Three will continue to shed jobs, and that the best hope to replace them would be from traditionally non-union favouring companies such as Honda and Toyota. Ontario must compete with many other eager states and provinces for those new facilities.

That particular legislation seems 180 degrees out of sync with the reality of the times, as does the provinceís recent budget decision to delay the elimination of capital tax on industry until 2010. As I understand it, the capital tax was initially intended as a form of minimum tax for corporations. However, what it actually is is a tax on the capital you leave in the company, or on new capital you invest in the company. We generally accept that we should be taxed on our income and earnings, but to be taxed on the accumulated profits that have been left in a company, or new capital invested in a company, seems completely ludicrous, especially at a time when we need to encourage profits to be left in, or new investments to be made in, our manufacturing companies. Conversely, the new federal budget that was announced on May 1 proposes to completely eliminate the capital tax effective January 1, 2006, and increase the small business limit to $400,000, indicating that the government will take a more proactive and business encouraging direction.

The Canadian government has long encouraged companies to invest in R&D through scientific research and experimental development industry tax credits (SR&ED ITCs). This has proven to be an effective initiative and has been widely lauded. But just like any successful and leading company, the government should
continually ask questions like: Is it enough? Does it still deliver adequate results? Can it be improved?

A few years ago, Ireland introduced very innovative tax considerations to encourage the development or acquisition of intellectual property (IP). Any profits derived by an Ireland-based company from its own IP is taxed at a significantly lower rate than other income. Canadaís program is good ó the company gets a tax credit for investments made trying to develop applicable new IP. Ireland, though, may have an even a better idea ó its government offers tax breaks on all of the profits made from that IP.

The buzz we hear around many communities today is that they are trying to attract “knowledge-based industries,” and some government leaders and economists are espousing the merits of developing a knowledge-based economy. But while some are simply talking about it, others are actually doing something about it. Ireland has one of the fastest growing economies in the European Union, and one of the highest standards of living. Many attribute this to its pro-IP strategy and policies.

Although the primary responsibility for the manufacturing sectorís success or failure resides in the hands of the individual company leaders, our government leaders have an important role, too. They can adopt best practices learned from others, connect with the realities of their marketplace, and then set their focus on where they want to arrive, and how they want to get there.

This is a changing world, and these are challenging times, but manufacturing will remain key to our continentís economic well-being. Now is the time for our government leaders to truly be leaders, too.””

Paul Hogendoorn is president of OES, Inc. and chair of the London Region Manufacturing Council. He can be reached at phogendoorn@oes-inc.com. For more information about the LRMC, visit www.manufacturinglondon.com.”