Canada’s government still doesn’t get innovation—and that’s a problem

TORONTO—Could it be that the disappointing results from the Trudeau government’s innovation strategy are due to its lack of understanding of how the digital knowledge-based economy actually works? When then-industry minister Navdeep Bains unveiled his innovation strategy in 2017, he boldly declared that there was no need for further studies. Jim Balsillie, the chair of the Council of Canadian Innovators, believes he was dead wrong. The failure so far of Bains’ promise that his strategy would make Canada one of the world’s most innovative nations seems to bear Balsillie out. In a paper he wrote for the Commons Industry Committee, Balsillie argued there is “a dearth of expertise” within the federal government on the major secular trends of the modern economy—the transition to an economy based on intangible assets such as intellectual property, the huge and still accelerating impact of the digital revolution, and the growing importance of both public “goods” such as education and research and public “bads” such as climate change. Much policymaking seems to assume we still live in a world where investment in tangibles, such as machinery and equipment, is the driving force, rather than in an economy based on intangibles where investment in skills, research, intellectual property, brand, and innovation more broadly, are the key drivers. Tangible investments still matter, but it is the intangibles which are the drivers. To get Canada on the right track, the first need, Balsillie argued, is to create an Economic Council which would operate independently of government, bringing together the best expertise in the country to analyze the big economic changes underway and the policies needed to ensure that Canada prospers in this new economic environment. Its studies would be made public. The other need, Balsillie argues, is to build up the in-house analytical and policymaking capacity within the federal government. It is weak today, with government outsourcing analytical needs to consulting firms. The result is a weakened in-house policy expertise. In their ground-breaking book, "Capitalism Without Capital," British economists Jonathan Haskel and Stian Westlake argue that “there is something fundamentally different about intangible investment, and that understanding the steady move to intangible investment helps us understand some of the key issues facing us today: innovation and growth, inequality, the role of management, and financial and policy reform.” Investment priorities, tax policy, competition policy, trade policy, incentive systems, accounting and trade policy all have to be viewed through a different lens. One example of Canada’s failed approach to innovation can be found in our permissive approach to foreign takeovers of our promising tech companies that have grown from start-ups, often with taxpayer support, to the point where they have strong intellectual property and potential for significant scale-up. In our trade agreements we have agreed to raise the threshold of foreign takeover reviews by Investment Canada to such a level that almost 100 per cent of our tech sector can be acquired by Google, Microsoft, Apple, Uber or Amazon, for example, with no review to determine whether such takeovers are in the Canadian national interest. Yet without large-scale Canadian companies in leading technologies, with a freedom to operate based on their ownership of intellectual property, we will lag other countries. We’ll simply be a source of seed corn for the prosperity of others. Another example can be found in our adoption of foreign—mainly U.S.—rules on intellectual property and the regulation of Big Tech in our trade agreements, with the Canada-U.S.-Mexico agreement a recent example. Canada bowed to U.S. pressure to expand copyright protection from 50 years to 70—a move designed to enrich big U.S. media and entertainment companies at the expense of Canadian innovators and consumers. Canada also agreed to constraints on the development of policies to deal with U.S. tech giants operating in Canada. Testimony by Canadian trade officials showed that little attention had been paid to these issues. In our approach to artificial intelligence strategy we have failed to recognize the predatory campaign by Big Tech giants to monopolize the field. In his revealing book, "Genius Makers," Cade Metz documents Google’s strategy to acquire the world’s top AI talent and start-ups, starting with its acquisition of the ground-breaking new deep learning technology developed at the University of Toronto by Geoffrey Hinton and two graduate students, who had turned their research into a company called DNNresearch and quickly sold it to Google in 2013 for US$44-million, with all three becoming Google employees. This was just the beginning. As Metz reports, by this time Google had set out its “intent on cornering the worldwide market for deep learning researchers” with no expense to be spared. Shortly after acquiring DNNresearch, Google then acquired a path-breaking British AI start-up, Deep Mind, for US$650 million. Deep Mind, Metz says, “had amassed what may be the most impressive collection of young AI researchers in the world.” Today both Deep Mind and Google are well entrenched in all three of Canada’s AI centres, in Edmonton, Toronto, and Montreal, with their own research centres in these cities as well as close links to our leading AI universities. They are hiring many graduates and operating R&D branch plants here to develop IP for exploitation elsewhere. So Canada’s Pan-Canadian Artificial Intelligence Strategy, which funds Canadian universities in AI research—$125 million over five years in Budget 2017 and another $443.8-million over 10 years in Budget 2021—is a bonanza for Google and other Big Tech corporations. A successful innovation strategy is essential for our future prosperity, to generate the jobs we need for a high standard of living and the wealth we need to provide the public goods and services we value as a country. But until we get the basic economic understanding right, we are bound to be disappointed no matter how much money we spend. This is why Balsillie’s call for an Economic Council to define the economy of the future is so essential. David Crane can be reached at cranbe@interlog.com. The Hill Times