This is no time for half measures or vague aspirations

TORONTO—The most urgent task in Finance Minister Chrystia Freeland’s forthcoming budget will be to set the country on the path to sustained and sustainable economic growth. Going forward, we will need more and better innovation to achieve good jobs, improved competitiveness, and increased productivity. The budget has to make this its priority. In her fall economic statement, Freeland stated that the government was developing “a major investment plan to stimulate economic growth, accelerate Canada’s recovery, and create one million good jobs to strengthen and grow the middle class.” Some $100-billion would be spent over the next three fiscal years—but only after the virus is under control. But it’s time to tell Canadians now what's in this package so that, if needed, it can be reconfigured to improve its effectiveness and so businesses can start planning on the basis of what’s in the package. The focus must be on stepping up investment in innovation to produce tradable goods and services that we can sell to the rest of the world. Getting the innovation policies right will be a big challenge. Huge opportunity exists in the green economy transition, synthetic biology, biosciences, agri-food, advanced manufacturing, and the digital economy. Innovation is needed as well for affordable housing, seniors’ care, smart cities, smart land use, and in education, with gains here also exportable. But this will require a government that is much more focused on how to get things done and a business sector with high ambition. Policies will matter even more because in the post-pandemic world global competition for jobs and growth will be much more intense—starting with the Biden administration, which plans to focus on its America First policies. Where will Canada fit in? New Innovation Minister François-Philippe Champagne will have to show he is up to the challenge of leading on innovation. His business experience should help. Then-foreign affairs minister François-Philippe Champagne, pictured Jan. 10, 2020, about to hold a press conference on the Jan. 8, 2020, downing of the Ukrainian Airlines Flight 752 which was shot down by an Iranian air missile, killing all 176 passengers and crew onboard, including 55 Canadian citizens and 30 permanent residents. In his new cabinet post, Champagne will have to show he's up to the challenge of leading on innovation. His business experience should help, writes David Crane. The Hill Times photograph by Andrew Meade While building up the capacities of our universities to train talent and conduct fundamental research for new knowledge is essential, the transformation of new knowledge into commercial success is an activity that takes place in businesses, not academia. So strengthening the links between knowledge creation and diffusion by academia and its successful commercialization by businesses is critical. This depends in turn on ensuring there is a strong and growing Canadian-controlled corporate base, rich in talent and intellectual property, and Canadian business leaders ready to take on more risk. This is where public policy steps in as an enabler. But how can it incentivize our businesses to be more innovative after a decade in which businesses overall have been cutting back on research and development and constantly earning low marks for innovation in international rankings? Government has many tools at its disposal, including tax incentives, grants, low-interest or forgivable loans, the creation of new markets through measures such as carbon pricing or smart use of regulatory powers, the funding of demonstration projects, public procurement, government as first customer, public-private partnerships, direct equity investments, challenge competitions, and other forms of risk-sharing. Governments can also do much to ensure competition, address the treatment of intangibles such as intellectual property as assets in financial markets, steering more of the resources of pension and insurance funds to invest in Canadian industry, helping to promote pools of patient capital for long-term investment, and dealing with Valley of Death issues as small companies strive to bring new products to market. Some companies will need to recapitalize, with equity rather than debt, with the Canada Development Investment Corp. as a possible vehicle. A new report—"OECD Science, Technology and Innovation Outlook 2021"—notes that since some 70 per cent of research and development spending in most advanced economies is carried out by business, “how governments incentivize and influence research and innovation can have major implications for our future.” But this is also a time, the report argues, where governments themselves have to rethink innovation strategies and become readier to intervene for results. For different countries there has been “a progressive rehabilitation of industrial policy from the perspectives of innovation, with arguments that governments should actively engage in making explicit innovation policy choices to focus their limited activist resources.” The shift to more activist policies represents a U-turn from recent decades where governments looked to low taxes, free trade, and deregulation to drive innovation. “The opportunities associated with the ‘next production revolution’ (which is occurring through the confluence of a range of technologies including artificial intelligence, 5G, new materials, 3D printing, nanotechnology and industrial biotechnology) have set the scene for support and regulation of business innovation to become one additional driver of the push towards greater productive technological autonomy,” the OECD report found. This will be a particular challenge for Canada. At the same time, it said, “public innovation support policies need to be able to guide private innovation efforts to where they are most needed, especially where market signals prove to be insufficient and coordination is most challenging.” Higher-risk R&D, where the payoff is also longer, is an example. But there will also be a need to deter foreign takeovers of promising Canadian-controlled companies in critical technologies if Canada is to have a strong economic base. The COVID-19 pandemic, the OECD finds, “has spurred many governments to enhance their foreign investment screening mechanisms or introduce new ones” which may reflect “the way governments and societies view the benefits and risks associated with foreign investment.” An OECD background paper on investment screening found there is now concern about “predatory acquisitions” where foreign investment may be associated with “sell-offs and the loss of critical assets and technology," with increasing attention to the effects of takeovers on overall innovation. Companies like Facebook, Apple and Google can “identify and acquire potential rivals early in their lifecycle before they become a competitive threat,” the report on investment screening pointed out. This is no time for half measures or vague aspirations. There’s too much at stake. Failure could mean a poorer country. So this budget really matters. David Crane can be reached at crane@interlog.com. The Hill Times

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This is no time for half measures or vague aspirations

There’s too much at stake. Failure could mean a poorer country. So this budget really matters.

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