National Post (National Edition)
Innovation fund as crisis relief misses point: critics
OTTAWA • There was a familiar ring to the announcement made by Natural Resources Minister Amarjeet Sohi in Calgary on Dec. 18, when he promised $1.6 billion in funding for the battered oil and gas sector.
Among the loans and grants on offer was $100 million for “energy and economic diversification-related projects.” The source? The Strategic Innovation Fund (SIF), a pool of money set aside by Ottawa in 2017 to “spur innovation for a better Canada,” according to its website. Just a few months earlier, SIF was used to provide as much as $250 million to steel and aluminum companies hammered by U.S. President Donald Trump’s trade tariffs.
Those expenditures have led observers to question the ruling philosophy behind SIF. Some warn the nascent fund could be falling into all-too-familiar patterns of the past, when Ottawa’s “innovation” funding has reliably coincided with supports for a private sector in crisis — whether it be oil and gas, steel, or aerospace.
“This bodes very badly for what SIF is designed to do over the next five years,” Dan Breznitz, professor at the University of Toronto and longtime expert on innovation policy in Canada, said in response to Sohi’s announcement.
Other investments under the fund include $110 million for Toyota Canada to modernize the plants where it manufactures its RAV4 model, and $3.4 million for a numbered company, based in Nanaimo, B.C., to convert a Boeing 737 jet into an aircraft used to fight forest fires. So far, the government has spent $845 million on 32 projects, according to a public database.
Breznitz said the SIF, managed under Minister of Innovation, Science, and Economic Development Navdeep Bains, would ideally operate free of any industry-specific focus, and choose investments based strictly on merit, with the goal of commercializing promising ideas.
“It is specifically not sector-oriented because the government has no business figuring out which company has the best projects,” Breznitz said. “And yet, before it even started to work properly, this government has now enlisted into a political public relations stunt.”
The argument is part of a long-standing debate about innovation policy in Canada.
There are countless ways in which a government can funnel money toward innovative companies or ideas, but they typically come in the form of either direct or indirect funding.
Indirect spending, often in the form of tax credits, was a long-favoured mechanism among policy-makers, and particularly conservativeleaning ones. But in a world where governments are increasingly willing to lean on direct stimulus as a way to give their most innovative companies an edge, experts are pushing for more direct spending measures like the kind adopted by Ottawa since 2016.
The SIF was launched in the summer of 2017 and originally set to spend $1.26 billion over five years. It would go toward helping firms expand and attract capital, as well as subsidizing research and development. Finance Minister Bill Morneau then boosted funding for the SIF by another $800 million last month in his fall economic statement.
Tech executives have been quick to applaud Ottawa’s innovation efforts in recent years. Some pointed to a number of expenditures under the SIF that seem appropriately geared toward innovative products.
Hamid Arabzadeh, CEO of Ottawa-based Ranovus Inc., received $20 million under the SIF in November. The company makes fibre-optic products that could substantially reduce GHG emissions from data centres, one of the fastest-growing sources of atmospheric pollutants.
“It was really not an oil, or gas, or natural resources investment,” Arabzadeh said. “In our sector, in what they did with us, it was very forward-looking,” he said.
But several in the tech sector, who asked not to be identified due to the sensitivity of the topic, said that Ottawa has instead used the funds to support wounded industries. That instinct is very familiar for people who have followed Canada’s public spending efforts on innovation.
“Essentially all government funding in one industry or another is political,” said Aaron Wudrick, director of the Taxpayers Federation of Canada.
The organization has criticized public spending programs of all kinds, under many different governments. Wudrick said part of the problem is how such expenditures are characterized: While government supports for steel and aluminum producers might be a generally sound idea, Ottawa should try to avoid packaging those expenditures as explicitly innovative policies.
“I think people would be less cynical if they just came out and said this industry has been unfairly hammered by a trade dispute,” he said.
In an interview with Financial Post in November, Jack Mintz, a fellow at the University of Calgary’s School of Public Policy, said government-led innovation efforts have historically been ripe for political meddling. He specifically cited the SIF as the sort of fund that can be mishandled when Ottawa finds itself in a pinch.
“The one criticism of a grant rather than a tax credit is it can be used politically,” Mintz said, adding he’s become increasingly supportive of direct spending efforts to spur innovation if they are administered in a sufficiently arms-length manner.
Innovation Minister Bains defended the SIF as a crucial job creator in Canada, in an opinion piece published on the Globe and Mail’s website on Christmas Day.
“Simply put, the Strategic Innovation Fund makes our government a better business partner with industry to create good middle-class jobs across the country,” he wrote.
In the piece, Bains said the government attracted $7.2-billion worth of “investments from our partners” and retained or attracted 50,000 jobs in 2017, claiming they were a direct result of Ottawa’s innovation spending.
However, according to access to information documents shared with the National Post, the government could not provide jobs numbers for all but one of the projects funded under the first $571 million of the SIF. In the document, the government says that “recipients were not required to report on the number of jobs created.”
When asked about the SIF criticisms, Hans Parmar, a spokesperson for Bains, wrote in an email that Ottawa is “taking decisive action to help restore competitiveness, support innovation, improve environmental performance and create more middle-class jobs.”
During Sohi’s announcement last month, he said the $100-million for oil and gas projects would come as part of the newly added $800-million pool of funding. Sohi suggested the expenditure could possibly go toward petrochemical plants in Alberta.