Productivity and innovation actions are a decade too late

TORONTO—At a recent off-the-record lunch, I heard the leader of an important financial services company declare that Canada was on the verge of an economic crisis because of our dismal performance in innovation-led productivity. While it is a sign of progress that our poor productivity performance has finally risen in public discourse, the reality is that we are already in an economic crisis. We are having discussions now that we should have been having a decade ago—or even more—when it was clear that the economy's potential growth rate was slowing, and that it could only be improved by rising innovation and productivity growth. Even today, there is an excess of complacency when we need urgency. Oil and gas exports cannot carry the economy much longer. What will deliver our jobs and wealth creation to sustain our quality of life in the future? While we have committed more than $50-billion in public funds to subsidize a domestic electric vehicle industry, much of that investment is to keep existing operations in Canada, not to create additional production. The new investment is in battery systems, but electric vehicles also mean fewer auto parts and fewer workers. As Greig Mordue, former Toyota executive in Canada and now a professor in advanced manufacturing at McMaster University, has noted, in 2000, Canada produced three million vehicles, employing 54,000 workers. But today it produces about 1.1 million vehicles, and employs about 37,000 workers. It’s unlikely there’s much room for growth, if any. Electric vehicles require about one-sixth of the parts an internal combustion engine requires, and can be produced in 30 per cent less time. The retention of the industry in Canada, while welcome, should not be seen as a big spur for future growth. If our nation is to get serious about its future and the wide-ranging challenges and opportunities we face, we need to approach innovation and productivity from a much better base, starting with a better institutional framework for policymaking and performance review. This means, first, an expert body—a productivity commission or economic council—to better define where Canada should put its priorities, propose policies to stimulate innovation and productivity, evaluate existing policies, and focus on specialized areas where better analysis is needed—for example, why our financial community is a weak link in building a more innovative country. Staffing would rely on a leadership core, but would depend heavily on temporary assignments with leading experts in Canada and from other countries. We also need to develop a much better understanding of the implications of new technologies, and their future widespread impact. This means creating a technology foresight unit within government to examine the society-wide implications of new technologies—for example, in the current context, artificial intelligence and the green economy. Technology foresight is an important tool to advance understanding of the implications of technical change, and help nations plan their long-term economic, social and environmental policies. In Canada, this could be run from the Privy Council Office, making it a government-wide exercise, with technical support from the National Research Council. We do have an chief science adviser's office, but its work and impact have so far been modest. Moreover, since innovation policy depends on both the federal and provincial governments, we need much closer collaboration between the two levels. But the last time there was a federal-provincial meeting of ministers responsible for research, science and technology in Canada was in September 2001. According to Industry Canada, the ministers met “to discuss ways to improve research and development performance and make Canada one of the most innovative countries in the world.” The lack of a united federal-provincial effort for innovation since then is appalling—even more so when there is a much weakened sense of national purpose in this country today. Meanwhile, without waiting for new institutions to be up and running, there are important things we could do now. Since technological progress is a core driver of economic progress, and since ambitious entrepreneurs are the source of many of our new commercially useful technologies, policies should aim to support the potential for success of these entrepreneurs and the scaling up and growth of their companies. One possibility to look to is the United States' Small Business Innovation Research (SBIR) program, which underwrites the research and development of new technologies that meet actual needs of that country's governments and agencies. There are may areas where we can support ambitious entrepreneurs in solving real problems. One is in housing. The government has—belatedly—announced a two-year, $50 million Homebuilding Technology and Innovation Fund, but it is counting on industry to supply an additional $150 million. The plan seems ill-conceived. There should be many opportunities for innovation in housing design and construction, but a better approach might be to hold competitions—SBIR-style—and provide money up front to ambitious entrepreneurs to tackle innovation needs. Agriculture and food processing is another example, as are clean water and sanitation systems, public transportation, and smart city technologies. So is defence. Canada is upping its defence spending, moving closer to its promise to spend two per cent of its GDP on defence, and with it the parallel commitment to spend 20 per cent of that amount on equipment. Under the federal government's Industrial and Technological Benefits Policy, firms awarded contracts of $100 million or more—and in some instances less than that—are required to spend an equivalent amount on procurements within Canada. This can amount to billions of dollars. We should set a target so that a specified share of that spending must go to small and mid-size Canadian entrepreneurial companies to develop new technologies and own the IP. This could be doubly significant since so many defence technologies may have civilian applications as well. So there is much we can do if we seriously try. But if we fail to act with a sense of urgency we could end up as the poor attic of North America. David Crane can be reached at crane@interlog.com. The Hill Times

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Productivity and innovation actions are a decade too late

If we fail to act with a sense of urgency we could end up as the poor attic of North America.

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