Special characteristics of pension funds impede their emergence as sufficient sources of financial capital for Canadian business. Part of (their) emphasis on liquidity stems from the emphasis of pension fund managers and, indeed of North American managers in general, on short-term instead of long-term gains. When quarterly results are the focus of attention; there is a tendency to be overly concerned with liquidity and the short-term.
- Canadian Chamber of Commerce, 1988
All is not as well as it could be with Canada's medium-sized companies...Too few of them move up to become larger companies. Too few small companies become medium-sized companies.
- Gordon Sharwood, Sharwood and Co., 1989
Difficulty in accessing capital limits the ability of firms to up-grade technologies or establish new ventures. As a result, it serves to weaken dynamism in the economy as a whole.
- Michael Porter, Canada at the Crossroads, 1991
The concern of many in Canada's business constituency about the investment and management of pension assets can probably be summed-up in one phrase: access to capital. In the not-so-distant past, the relationship between our national savings, investment and capital formation, and our prospects for continuing economic growth, employment and wealth creation, was seen as a fluid and uncomplicated one. More recently, this relationship has come under the microscope.
This is due entirely to the nature and pace of economic globalization, the liberalization of trade and finance, and increasing diffusion of automation and new technologies. These confluent developments are redefining competitiveness for business in the Canadian economy and, over time, assist in determining what industries are likely to exhibit growth while others exhibit decline. The basis of a so-called "new" economy - innovation geared to more use of knowledge, technology and skills - is evident in the market advantage gained by those traditional and non-traditional Canadian industries that best reflect the value these elements add to production.
Continuing economic change and restructuring of this variety requires a major commitment of capital resources. American economist Michael Porter saw this when he said that advanced industrialized countries such as Canada could no longer afford to view the relationship between industry and finance as straightforward. Rather, Porter argues, in a new and more competitive global economy, a nation's stock of capital, no matter how vast, would only be effective if it was deployed strategically to reach our best economic growth prospects. This is a long-term endeavour and one that requires a greater degree of financial innovation, specialization and adaptation to the demand needs of knowledge-based and technology-intensive firms. In short, says Porter, a new economy requires smarter capital and more patient capital.Endnote 1
Is this happening to the extent it should in Canada in the 1990s? Some businesspeople would answer in the negative, pointing to the real and perceived barriers to capital availability faced by small and medium-sized enterprises (SMEs) that remain responsible for a disproportionate share of gross and net new jobs in the national economy. Perversely, SMEs and their economic contribution of new company formations, multi-stage business development and expansion and the emergence of high technology industries, are constrained by problems in accessing enough affordable debt and equity financing.
The Canadian Chamber of Commerce, in co-operation with the CLMPC, helped to confirm the facts of this situation. In a 1995 survey of 1,500 SME members of the Chamber, the CLMPC found that over one-half of respondents believed their access to capital circumstances were only somewhat adequate or were not adequate. Perceived impediments were more pronounced for the smallest and youngest of these firms. Furthermore, high technology enterprises were likely to confront twice as many financing roadblocks as their low technology counterparts.Endnote 2