We need a different kind of industrial strategy

TORONTO—Think of all the tradable goods and services we produce across Canada— from canola oil and Canada Goose parkas, to tourism and Shopify’s e-commerce platform—as Canada’s export catalogue. That’s what we are offering to sell to the rest of the world—and the success of our catalogue determines how well we do as Canadians. Whether people in other countries want to buy what’s in our Canadian catalogue will have a big impact on our jobs and overall prosperity. Unless we can produce the goods and services others want to buy, we won’t be able to afford the things we need to buy from them. We will be a poorer nation. This means we need a really compelling catalogue. The problem is that too much of our catalogue is stale. We can no longer look to the big-ticket items that other countries have traditionally bought from us as the drivers of future growth. We need a new catalogue—and this is doubly important because other countries are busy producing better catalogues as well. Our catalogue is dominated by a handful of industries which appear to have limited future prospects as we head towards 2030. These include oil and other fossil fuels and autos and auto parts, which together account for roughly 35 per cent of our merchandise exports. They will not be drivers of future growth. What will be the new drivers? Bearing in mind that new activities—the new items in our future catalogue—will come from new ideas, it is doubly imperative that we take a much more focused approach on how we develop and convert new ideas into successful businesses that can compete around the world. Moreover, while the pandemic will lead to some pullback of production for some essential goods to safeguard health, for example, globalization is not dead. As more than 2,000 years of history remind us, we are a world of traders. It will be a highly competitive world. But it could also be a lonelier world for Canada and one that puts much more onus on us to define and defend our own interests. For much of our history, we could fall back on Britain, then the United States to back-stop us, or give us special treatment. But those days are long gone and an increasingly protectionist U.S. no longer sees a special relationship with us—its eyes are on other parts of the world, starting with China. Its America First interests likely won’t change much even with a new administration. It is also imperative that we recognize that the economics of growth have changed. This is the message, for example, that Jim Balsillie, chair of the Council of Canadian Innovators, is trying to get across. In a recent appearance before the House of Commons Committee on Industry, Science and Technology, he stressed that “Canada needs to diversify its products, not just its markets” in a world where “intellectual property and data are the most valuable business and national security assets.” We have to rethink many of the things we do and the incentives we create. Perhaps the single biggest marker of how economies have changed can be seen in the growing importance of intangible assets—such as intellectual property, research and development, skills and know-how, branding and business organization—as the sources of value and competitive success. One of the biggest challenges in Canada is to expand the too-small universe of Canadian-controlled and headquartered companies—Canadian multinationals—that have the scale and scope to fill the Canadian catalogue with new products and services that the rest of the world wants to buy. As a recent study from Statistics Canada shows, Canadian companies that become multinationals are 23 per cent more productive than Canadian companies that do not become multinationals. What enables them to become multinationals is that they have firm-specific advantages—intellectual property and other intangibles—that they have developed in Canada and can then take abroad. The study also found that Canadian multinationals were just as productive as foreign multinationals. It is the more productive companies that become multinationals. Research and development is important. “R&D efforts represent a key strategy for firms to develop firm-specific advantages,” the Statistics Canada study says. “In addition to innovative products, services and production processes, firm advantages also include the development of intellectual property, which gives firms and edge in both their home and host markets. In addition, R&D efforts enhance a firm’s absorptive capacity, allowing it to better learn from both domestic and foreign markets.” What this means is that instead of the all-too-frequent sell-off of young Canadian companies—and their intellectual property—we have to create the conditions so that more Canadian companies can scale up and compete globally based on their intangible assets, including intellectual property. This means a different kind of industrial strategy—one that creates opportunities and domestic markets for the most promising young companies, such as acceleration of smart cities, clean energy, sustainable water systems, new forms of urban design (including transportation and housing), agri-food genomics, smart materials, and health care. It is also one that discourages foreign takeovers of our best young companies and their intellectual property as well as discouraging universities from selling off their intellectual property to foreign corporations. More of our investment in academic R&D and talent development must go to building Canadian companies rather than supporting foreign R&D branch plants here that capitalize on our investments in education and new knowledge to create intellectual property and prosperity for their foreign parents. Canada today lacks such a coherent strategy for the future. It is not coming from government, from our universities, our business organizations or our think tanks. Yet it is hard to think of a more pressing need. Without such a strategy we will only offer the world a dated catalogue that’s far less attractive than those of our competitors. And that means we will be a poorer country. David Crane can be reached at crane@interlog.com. The Hill Times

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We need a different kind of industrial strategy

One that creates opportunities and domestic markets for the most promising young companies, such as acceleration of smart cities, clean energy, sustainable water systems, new forms of urban design, agri-food genomics, smart materials, and health care.

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