A REGIONAL INDUSTRIAL PERSPECTIVE ON CANADA UNDER FREE-TRADE

The Canada-US Free Trade Agreement guarantees that Canadian manufacturing faces greatly increased competition. The orthodox economic view suggests that increased competition will induce firms to be more innovative. The contrary view developed here is that many firms require supplementary industrial policies if innovation is to occur with any strength or speed. In addition, trade, innovation and other industrial policies require a substantial measure of coherence to be effective, and this means a need for compatibility between the policies developed at different jurisdictional levels. Toronto, Canada's major industrial centre, is used to illustrate the problems experienced by indigenous firms, small and medium-sized enterprises (SMEs) being singled out for particular attention. The paper uses arguments involving transaction costs and disadvantages of small scale to explain the problems SMEs encounter in innovation and to justify policy initiatives. Current innovation policies of national, provincial and local governments are evaluated and the conclusions focus on the importance of local initiatives to help SMEs build information networks.