Subsidizing innovation doesn’t work

Spending and subsidy seem to be the only policy levers our governments have a firm grasp on. They’d even have us believe they can subsidize the country into innovative productivity gains.

An especially egregious example is the federal Strategic Innovation Fund (SIF). That Canadians tolerate this Niagara of slush testifies to our political apathy. Displaying neither strategy nor innovation, the SIF ladles out public cash to corporations, many of them foreign-owned. In fact, the SIF debases and mocks innovation, in service not to innovation but to crass politics. Remember $12 million for new freezers for Loblaws grocery stores? SIF. Or $49 million to Mastercard international for a new cybersecurity centre in Vancouver? SIF. Or $55 million for a bridge on a road to an LNG Canada facility in Kitimat? SIF. And on and on. We are taxing people just to give money to rich corporations who ask for it. How is it that Canadians are not up in arms about the SIF? Or the Super Clusters programme, or all the other cluster-muck that suffocates innovation in this country?

The pretext that public subsidy serves innovation is hollow. Innovation is rare. It’s born of discipline, toil, long-horizon investment, expertise, creativity and willingness to embrace failure. Innovative productivity gains cannot be created by subsidizing. Subsidies are inherently unproductive, and anyway it’s hard to imagine buying a productive economy with tax revenues from an unproductive one. The world is too competitive. Hoping to successfully subsidize innovation is like spending one’s savings on lottery tickets: a lazy waste of opportunity.

Many inventors, companies, consultants and academics naturally argue in favour of subsidies. Talk’s cheap and the money’s free. And they’re arguing before governments, which always have wideopen ears for opportunities to give our money away for their own political benefit.

Public money is expensive, raked in by an inefficient, wasteful and costly bureaucracy from a private sector whose innovation and productivity are discouraged by the very act of taxation. And how can government decide whom to subsidize? The cost of getting it wrong, unlike for investments in the real world, is basically zero. And investment decisions are unavoidably mired in political calculation and opportunities for outright corruption.

But even if government had nothing but the best intentions and sincerely wanted to create innovative activity, who decides who gets a subsidy? The very best venture capitalists make the right investment less than 20 per cent of the time. And the very best venture capitalists get very rich — in the private sector. Will anyone willing to take public sector wages in order to give our money away be competent to generate any return but votes for his or her bosses, if that?

So-called innovation programmes in Canada inevitably degenerate into regional subsidies. Regionalism buys votes. Try looking for meaningful success metrics that the federal government reports on its innovation subsidies and investments. Ottawa alone wastes billions on innovation subsidies without taking any risk of being held accountable for returns. No meaningful data, no financials or spreadsheets, just puffery and press releases.

The people and businesses seeking public subsidies are rent-seeking opportunists, not innovators. Real innovators have better things to do. Even purportedly free government money is too expensive. The waste of time involved in applying, lobbying, hoop-jumping, programme compliance, and dreadful trivia like Scientific Research and Experimental Development tax credit program filings, stifles innovation. But because Canada’s innovation economy is so badly structured, we don’t have the abundance or sophistication of alternative sources of investment that characterize truly robust and productive economies. Government squeezes out private capital. And so, however reluctantly, Canadians depart for greener pastures. Make no mistake, Canada is in competition with other innovation ecosystems for the best minds, the most fruitful inventors and investors. If we won’t sustain their dreams, another nation will.

One of the most glaring examples is life sciences innovation. The Liberal government’s hostility to pharmacological and related research is well documented. Around the world, life sciences research is a source of wealth, jobs, productivity gain and better health and longer lives. Instead of benefiting directly from it we rely on the U.S. to create the drugs we need, then expropriate them.

The real recipe for a strong innovation economy includes no subsidies to businesses. It requires low taxes, strong intellectual property laws, robust and diverse capital markets, and less regulation. But these would benefit the country as a whole and its citizens — not the vested interests in corporations or governments or all the well-paid consultants and academics who cater to them. Without political will or any accountability, how will we ever move away from the anti-innovation policies our governments are determined to blight us with, towards more progressive ones based on free markets, property rights, and fairness?

WE ARE TAXING PEOPLE JUST TO GIVE MONEY TO RICH CORPORATIONS WHO ASK FOR IT.