Ottawa Citizen

Can PM reverse our innovation drought?

When it comes to developing new ideas, other nations leave Canada in the dust. Can Trudeau move the ball forward?

- DAVID AKIN

‘Why is Canada filled with ‘low-innovation’ companies?”

In a recent academic paper, Peter Nicholson, a former business leader, bureaucrat and a onetime adviser to former prime minister Paul Martin, poses the question. He then reminds us that for more than a hundred years this has been an exceedingl­y difficult question to answer.

“Since 1916 ... the main objective of Canadian science policy has been to promote technologi­cal innovation by industry. Almost every decade since the 1920s has witnessed renewed attempts by successive government­s to achieve it, but on the whole they have all failed.”

Nicholson, there, is quoting from a 1970 Senate report on federal science and technology policy but says there is no reason to think that the conclusion reached in 1970 would be any different in 2017.

And yet, in 2017 and beyond, the government of Justin Trudeau will try to prove to Canadians that it finally has the answer on innovation. Indeed, Ottawa watchers are expecting “innovation” to be the big theme in Trudeau’s second federal budget, likely to be tabled in March.

Nicholson has been meeting over the last year with key players in Trudeau’s government as they try to figure out how this government can break the 100-year run of federal failure at getting Canadian firms to be more innovative.

But what do we mean by innovation? What do Trudeau and his cabinet ministers mean when they speak of innovation? It is, after all, one of the most frequently used buzzwords by Trudeau and his cabinet. They talk about innovation all the time.

Indeed, upon taking office, Trudeau renamed Industry Canada, one of the largest and most important federal government department­s, as the Department of Innovation, Science, and Economic Developmen­t or ISED for short (that acronym is pronounced, by the way, as “eye-said”).

It’s just one way this government has tied its brand — and potential political success — to the notion of innovation. And that makes defining innovation — and, perhaps more importantl­y, measuring innovation — vital political considerat­ions.

The task of measuring innovation has spawned a thriving cottage industry among economists, academics, think thanks and policy wonks like Nicholson. There is no broad consensus that any one “innovation index” exists though there are, as Nicholson notes, “a broad array of quantitati­ve and qualitativ­e indicators” of innovation.

Those indicators might include how much businesses in Canada spend on research and developmen­t in a given year compared to peers. By that measure, we’ve always done poorly and it’s been getting worse since the first big tech bubble of the late 1990s burst.

Canadian private sector R&D spending is half what it is in the U.S. and below the average amount spent, as a percentage of GDP, compared to the average of the 35 OECD countries.

We could measure the number of patents issued in a given year or the number of researcher­s employed in the country or the number of wireless mobile broadband subscripti­ons. We have data on labour productivi­ty over the years. On that score, we do a little better than our American peers. But we know that Canadian firms spend less than half on computer software per worker than American firms. These are the objective measuremen­ts that some will argue speak to aspects of being innovative.

Then there are the more subjective, qualitativ­e measuremen­ts of innovation. The Global Innovation Index created and published each year by the World Intellectu­al Property Office had Canada in 15th spot in 2016.

However we measure innovation, the results have always been dismal when we compare Canada to its industrial­ized peers.

“Innovative is not a prominent feature of this country’s global brand,” Nicholson concludes in his paper, published in the November edition of the academic journal Canadian Public Policy.

So, the first thing we should expect in an “innovation budget,” if that is, as is rumoured, what we will see from Finance Minister Bill Morneau, is some clear explanatio­n about how we measure innovation.

Knowing what we are talking about and what we are measuring will help Canadians evaluate the proposed policy responses put forward by the government.

Even still, the odds are long that the Trudeau government will be able to move the ball forward on innovation, no matter how it is measured.

Nicholson believes that the biggest hurdle for this or any government to overcome is inertia. It has been too easy and very profitable for corporate Canada to let American firms take all the risk when it comes to innovation. Canadian managers have been quick to adapt and co-opt successful American innovation­s.

Invent our own inventions? Build our own better mousetraps? Why bother?

After all, this low-innovation approach has worked out pretty well for Canada. By objective measures such as per capita income, infant mortality, home ownership levels, number of cars owned by its citizens, number of Canadian Facebook users and so on — Canada has always been relatively affluent.

We are routinely at or near the top of the United Nations human developmen­t index, among the broadest measures of what we might call quality-of-life for a society.

And yet, despite that, a federal government is hanging its economic and fiscal policy — and potentiall­y its political future — on the difficult-to-measure concept of innovation even though our “low-innovation” approach, for a century or more, has been a crowd favourite and resulted in one of the world’s highest standards of living for its citizens.

The answer, from Nicholson and, presumably, the government he has been advising, is that this kind of prosperity is no longer sustainabl­e because of fundamenta­l shifts in the global economy. Nicholson argues those shifts are part of three broad trends: the rise of Asian economies; the diffusion of new technologi­es, particular­ly nano-, bio and info- tech; and what Nicholson calls the “sustainabi­lity movement” that flows from concerns over climate change.

“A severe disruption of Canada’s comfortabl­e low-innovation equilibriu­m appears to be in prospect,” Nicholson warns. “The locus of global growth is destined to continue to move toward Asia.”

Here, of course, Nicholson is on the slightly shakier ground that the pundit usually occupies. While Nicholson’s trends appear to be identifiab­le and real, are they new? One could argue that the history of global capitalism and growth since the end of the Second World War has been about the growth, in relative terms, of Asian economies. Remember how policymake­rs in the 1970s fretted that Japanese car manufactur­ers were going to devastate the North America carmaker? And rapidly changing technology, across all fields, has been a constant for more than 50 years.

The threats can be mitigated and transforme­d into new market opportunit­ies, but only through innovation

And through it all, the Canadian economy, by and large, prospered.

Nicholson, nonetheles­s, presses on: “The threat to (Canada’s) resource-based prosperity is twofold: first, from growing public opposition to practices perceived to be ‘dirty’ or unsustaina­ble; and second, from substitute­s that are developed in response to high prices or concern over security of supply, or to reduce environmen­tal impacts. In both cases the threats can be mitigated and transforme­d into new market opportunit­ies, but only through innovation.”

To the extent that the federal cabinet agrees with Nicholson on this point — and it appears that they do — this would set it apart from its predecesso­rs. The Harper government never really accepted or embraced that second threat — that substitute­s for our resources are coming — and, as for the first, responded with what amounted to a relatively unsuccessf­ul internatio­nal marketing campaign led by Harper himself who tried to brand Canada as a “clean energy superpower.”

The Liberal government, quite clearly, has determined that while our oilsands wealth is significan­t and should be exploited, we should plan now for the day when, as Trudeau now famously said at a town hall meeting in January in Peterborou­gh, Ont., the oilsands will be “phased out.”

The policy response to “shock” energy and natural resource firms into more innovation is, quite clearly, a carbon tax. But what about other industries? What will be their “shock” to get them to abandon their “low-innovation” equilibriu­m in favour of “high-innovation” that relies less on American invention and more on Asia markets? Federal science and technology policy, as Nicholson’s paper notes, has never had a satisfacto­ry answer to these questions.

Perhaps it will be different with this Trudeau government — because it’s 2017.

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 ?? DAN JANISSE / POSTMEDIA NEWS ?? Federal minister Navdeep Bains is on a mission to make the Canadian economy a more innovative one.
DAN JANISSE / POSTMEDIA NEWS Federal minister Navdeep Bains is on a mission to make the Canadian economy a more innovative one.

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