Long way to go before Canada becomes innovative nation

TORONTO—The Trudeau government’s promise to deliver greater prosperity and opportunity for the middle class will depend crucially on its success in propelling Canada forward as a truly innovative nation. It’s why there’s an intense activity underway today to draft a new innovation agenda for the country. But it’s a big challenge. More than incremental improvement is needed. But what we are seeing is not encouraging. The World Economic Forum’s just published Global Competitiveness Index ranks Canada 15th overall. But it ranks Canada 21st in technological readiness and 24th in both business sophistication and innovation. Moreover, surveyed executives rank insufficient capacity to innovate as the most problematic factor for doing business in Canada. And a survey of Canadian business by the consultancy Deloitte found that “at a time when Canada needs its businesses to be bolder and more courageous than ever before, almost 90 per cent aren’t up to the task.” It found that some businesses were simply risk-averse, others were content with what they were doing, and others believed they were already operating at their peak. The bottom line, Deloitte said, was that “far too many Canadian businesses lack the courage necessary to make bold decisions in the face of uncertainty and risk. They shy away from making key investments and executing dynamic strategies, unwilling to accept short-term challenges for long-term opportunity. As a result they—and Canada’s economy—remain in low gear.” Yet some companies and sectors are highly innovative, while others are not. What’s important is to find out why. This means adopting a much more focused sector strategy. The financial services sector is a good example. It is undergoing significant disruptive change. There is much innovation taking place and this sector today is one of Canada’s biggest spenders on research and development. Why? Technology and competition. Technology has had a big impact on finance for some time, starting in the 1970s with automatic teller machines, with phone-in banking in the 1980s, and online banking and stock trading starting in the 1990s. Today, technology has taken disruption to a much higher level. The combination mobile devices and the wireless world, with smartphones more powerful and vastly cheaper than the 1969 Moon-launch computers, along with rapid advances to 5G or ultra-high-speed, and high-capacity communications, could do to many traditional financial service providers what Uber is doing to the taxi business. Millennials—often defined as those born between 1982 and 2000—are wedded to their mobile devices and ready to switch to new providers that best meet their needs. This is a world of bitcoin and blockchain, online banks with no physical branches, robo-advisers to manage your RRSPs, apps that enable everything from foreign currency transactions to fast-approval loans for small business, analytics to personalize many financial services, and crowdfunding as a new way to raise money for startups. The world of finance as we know it is being radically changed, with banks cutting branches and tellers and hiring many more software developers and electrical engineers. It’s noteworthy that at the annual meetings of each the big five banks, the top executives focused on technology in their speeches to shareholders. While many of these changes are being driven by big financial companies themselves as they compete to retain their advantages, they are also being driven by a vast array of new financial service companies, so-called fintechs, many of which are targeting profitable segments of the big institutions and others that hope to sell their services to the big institutions, with new businesses such as Koho Financial, Borrowell, Lendified.com, EQ Bank, and Impac Finance emerging. The MaRS Discovery District in downtown Toronto is working to build the base for a fintech cluster. The innovation policy challenge in this sector is to ensure that the regulatory environment enables customers to have the best possible and most convenient services at the cheapest possible price while at the same time ensuring stability in the financial system, protecting privacy and dealing with threats such as cybersecurity, money-laundering, and tax evasion. This is not only a responsibility of regulatory agencies as well as the Bank of Canada and Finance Canada, groups we don’t typically think of when reviewing innovation strategy. But given the need for public understanding and discussion, this would be a good challenge for the Senate Finance Committee, with public hearings to review the scope for innovation in finance, as well as looking at a technology roadmap for the future. TD Bank provides a good example of how a large financial institution is innovating. Rizwan Khalfan, a computer science grad, is the bank’s chief digital officer. Today he has a staff of about 1,000, half of them tech-savvy people such as engineers and computer scientists, and the other half coming from the business side of the bank. He has employees in a 200-person tech hub the bank has in Kitchener-Waterloo, Ont., while a few are in Communitech, a hub for startups and co-op students, also in Kitchener-Waterloo. The bank is working with Cisco at its new high-tech lab on Toronto’s waterfront, and Khalfan is a regular visitor to Ryerson University’s Digital Media Zone, an incubator for tech startups. “The mobile device is the disruptor,” he says, which has taken over people’s lives—so the bank has to be there. Or as Brian Porter, CEO of Scotiabank, told his annual meeting, technology is moving so fast it “allows an increasing number of customers to do virtually all of their banking with the smartphone in their pocket.” By 2020, he predicted, less than 10 per cent of financial transactions will occur in the traditional branch network. It’s hard to see how the Trudeau government can deliver an effective new innovation agenda unless it digs down to individual sectors, such as financial services, to see which sectors have the greatest promise for our future, and figure out public policy can best do to help build success. This means a much more analytical approach than we’ve seen so far. David Crane is an award-winning journalist with special interests in the economics of globalization, innovation, sustainable development, and social equity. He can be reached at crane@interlog.com. The Hill Times