For innovation to flourish, a whole ecosystem is required, but Canadian policy hasn't supported that approach, so innovation and productivity are crippled.
Canada’s prosperity depends on productivity and job creation, and they demand innovation. But Canada’s record on innovation is mixed. While this country repeatedly scores well on the quality of its scientific research, the Conference Board of Canada, the World Economic Forum and the Organisation for Economic Co-operation and Development have all found that we do poorly on business investment in innovation. That is, we are good at spending money on science but bad at making money and producing jobs with science.
Governments have long recognized the importance of technological innovation. In December 2014, the federal government issued a new Science, Technology and Innovation Strategy that specifically addressed this challenge. For the first time in decades, the government consciously incorporated innovation policy within its science and technology strategy. Unfortunately, it did little more than that. The 2014 policy is remarkably similar to Canada’s 2007 Science and Technology Strategy, which itself added little new to former policies. All iterations of the strategy remain aspirational rather than concrete and focus primarily on upstream technology rather than on articulating an innovation strategy in which science and technology contribute to productivity gains. Even the recent federal budget’s announced investment in science infrastructure does little more than maintain the status quo.
There are multiple reasons for Canada’s lack of technological innovation. First, much of our economy is based on natural resources, where technological innovation is slow. We suffer from small and fragmented markets, a dearth of business investment and a lack of competencies necessary to manage the risks arising from technological innovation. Further, Canadian businesses have been sluggish in adapting Canadian technology to reduce costs or increase offerings. All of these factors exacerbate our apparent inability to break into the US market other than by selling our ideas at a low price. This is perhaps our key failure in achieving productivity growth.
International metrics have singled out business investment in the innovation continuum as a particular weakness. As a result, Canada has concentrated much effort on bringing business investment into the system, though few have put forward realistic and targeted solutions to translating the resulting science and technology into firms able to sell in global markets. Governments place emphasis on research grant programs that encourage universities to enter into partnerships with industry as one way of fostering innovation. They have also used the tax system and direct subsidies to encourage relatively early stage business investment. Some of those efforts have succeeded in bringing infrastructure, money and talent to accelerate innovations in health (e.g., BioCanRx and the Centre for Drug Research and Development) and information technology (e.g., the Accelerator Centre in Waterloo, Ont.), yet much of the effort remains upstream and ideas are still sold off relatively early. Few interventions have delivered on the creation of firms that actually sell products and services around the world and on the adoption by Canadian firms of Canadian technology.
The overall pattern is, in Canada, a largely unproductive mix of university-industry partnerships with ill-defined goals lacking sustainability, and small technology firms that fail to grow and that could not survive without continual government subsidy. Efforts to date have yet to put a measurable dent in Canada’s low productivity.
Rather than tinker with the problem in a piecemeal manner, we recommend that Canada take a holistic view of innovation and invest in creating an innovation ecosystem.
There is no silver bullet to reversing Canada’s low level of innovation-driven productivity. Too much emphasis has been placed on encouraging individual components of the system — such as universities — that are not institutionally, financially or culturally capable of building a national innovation platform. Rather than tinker with the problem in a piecemeal manner, we recommend that Canada take a holistic view of innovation and invest in creating an innovation ecosystem. We suggest five important elements of that ecosystem.
First, Canada needs to develop individuals with the business capabilities needed to aspire to and manage technological innovation. Canadian firms tend to favour the traditional business culture and capability set of natural resource producers and manufacturers. While valuable, these are not the skills needed to bring technological innovation forward. Managing innovation requires competencies (e.g., strategic business environment assessment, strategic marketing, competitive intelligence, intellectual property and regulatory strategy, etc.) that are underrepresented in established resource and manufacturing industries. These competencies enable enterprises and investors to take the shrewd risks that give rise to new, innovation-driven businesses — and the high-value jobs that they support. To respond to this, Canada not only needs to develop a cadre of individuals with these capacities — through university and community college programs — but the networks that sustain them.
One of the great advantages the United States has is the abundance of lifelong bonds of loyalty and trust that allow firms to overcome risks and setbacks. Elite universities, hospitals and research institutes are key to developing and sustaining these bonds. Our chronic underfunding and unwillingness to specifically invest in (or even recognize) our elite institutions undermines not only science but the nurturing of those key bonds. Until we address this underfunding, Canada must encourage its firms’ senior executives to develop strategic plans to develop the needed competencies in-house and grow support networks for continued success.
Second, Canada must work to create a system in which universities and colleges, industry, finance and markets are efficiently and effectively connected. Despite years of trying, university-industry collaborations have failed to increase the overall rate of Canadian innovation. The focus has been on the stop-start transfer of individual inventions rather than on the creation and maintenance of a knowledge infrastructure to fuel future innovation. US accelerators (like Y Combinator in Silicon Valley) often bring a holistic approach to investment, bringing new firms not only management expertise but entry into the larger innovation ecosystem. A conversation is needed in Canada about how to better connect knowledge producers, investors, firms and end-users to create a robust innovation environment. While the outcome of this conversation needs to be open, what cannot be accepted is a piecemeal approach focusing only on moving university knowledge out to the private sector. That has been tried and has failed.
Third, Canadian intellectual property law needs to be refocused on the needs of the whole economy and in particular of small and medium sized enterprises for whom intellectual property is both a driver and a cost. Increasing or expanding rights across the board according to demands of trading partners is not the solution. Instead, adopting measures that are targeted to those industries and those actors that actually invest or are likely to invest in Canadian innovation is the better way forward. International law, including trade agreements, provides Canada with considerable flexibility in determining how best to create a dynamic innovation ecosystem that provides an incentive for investment. Canada needs to use this flexibility in order to decide how best to focus intellectual property and associated regimes on the goal of increasing high-value research and development in Canada that breeds success while leaving a legacy of world-class researchers, managers and investors in Canada.
Fourth, the people who will lead change are the young, not the old guard. Creative ways need to be found in which to support, develop and feed (rather than hamper and undermine) the aspiration of entrepreneurship among a younger generation of scientists and technologists. In the medium term, it is this generation that will create Canada’s next innovative firms. Programs that fund established stars may increase Canada’s research output, but funding graduate students and postdoctoral fellows is more likely to lead to innovation. Developing entrepreneurship does not mean failing to invest in blue-sky research — we know that those countries that do not support idea-driven research do worse than those that do — but rather supplementing those investments with real opportunities to learn how to manage technological innovation coupled with a reward system in our institutions that recognizes entrepreneurial success (for profit or not) alongside academic success.
Fifth, Canada must focus its investments in key domains of innovation, not just key domains of science. Public monies tend to fund knowledge creation rather than innovation. There is relatively little appetite for focusing blue-sky science funding on particular areas of scientific interest since nobody can predict which knowledge will later turn out to be most significant. The same logic does not apply, however, to investments in innovation. Here, Canada does not have the capacity to be best in all fields. We will thus have to make choices as to which technological fields and in which locations we invest. Other countries, such as the UK and Germany, have already worked this out. What we need to do is to explore the options for identifying priority areas of innovation and for structuring public and private financing to support them. This will be a difficult discussion as every person considers his or her area to be the most important. The reality is, however, that Canada possesses certain advantages— such as health data and materials specific to our public health system — that give it a natural lead. Equally, there are areas in which other countries have market leadership that would be expensive and inefficient to rebuild here, and so we should not try.
While addressing these components of an integrated innovation system will not be easy, a continued failure to seriously address them will leave Canada without the productivity gains so necessary for economic and social advancement. Innovation does not just happen; only with the right combination of public infrastructure, private sector competencies and investments by both will Canada get ahead. We already punch above our weight in scientific research; now is the time to build a truly integrated system and do the same in innovation.