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Canada’s economic future depends on Trudeau government’s innovation strategy

By David Crane      

There’s no question the Trudeau government has opened the spending taps. While the federal government’s initiatives are certain to have some positive benefit for Canada’s innovation capacity, whether they will go far in closing our innovation gap with the world’s leading innovation nations is another question.

Innovation Minister Navdeep Bains, in launching the government’s innovation agenda, declared we don’t need any more studies. He was dead wrong, writes David Crane. The Hill Times photograph by Andrew Meade
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TORONTO—Canada’s economic future depends on our success at becoming much better at innovation, which is why the Trudeau government’s innovation strategy is so important. The question is whether it will be more successful than efforts of previous governments since this is not a new challenge. Remember the Mulroney government’s Prosperity Initiative, the Chrétien government’s Innovation Agenda and the Harper government’s Mobilizing Science and Technology to Canada’s Advantage?

What makes our success in innovation even more critical today is that we lag in the productivity growth needed to sustain and improve our standard of living, with little evidence this will improve, our businesses have been cutting back on research and development and seem unwilling to do much more, and, because of our ongoing trade deficits, we are running chronic current account deficits in our dealings with the rest of the world.

Moreover, we are not living in isolation. Around the world, from the U.S., Europe, and Japan to Russia, China, and India, there is a race underway to be innovation leaders. Vast sums of money are being spent to become innovation leaders. So competing in innovation will not be easy.

While the Liberals have embraced the innovation challenge since forming the government, what’s troubling is the lack of any analysis of how the world of innovation is changing and how we can best respond. Innovation Minister Navdeep Bains, in launching the government’s innovation agenda, declared we don’t need any more studies. He was dead wrong. There’s still much we don’t know about innovation or why Canada, despite individual successes, is still a middle-tier country in innovation.

Robert Gordon, a leading U.S. expert on innovation, argues that things are different today and improving productivity may be much more difficult. Our government doesn’t seem to understand that. Instead, there’s too much talk of Canada as “a global innovation superstar,” without acknowledging what it would take for Canada to achieve “superstar” status.

There’s no question, though, that the Trudeau government has opened the spending taps. Several billion dollars are committed to development, demonstration, and installation of clean energy technologies, nearly a billion dollars for so-called superclusters, and other funding for agri-food, smart cities, artificial intelligence, genomics and university and college research. There is an apparent assumption that by spending more, innovation will happen.

Bains’ biggest new initiative is his so-called superclusters plan, in which $950-million is being divided between five winning clusters over five years, to be matched by private-sector funds. The five clusters—ocean technologies, artificial intelligence and robotics, advanced manufacturing, protein industries and digital technologies—are expected, in Bains’ words, to create “global market leaders” and make Canada “a global innovation superstar.”

There can’t help but be some positive results from this activity. But whether or not each cluster becomes “a world-leading innovation hotbed” is far from certain. Separating hype from reality is a problem. After Bains announced his superclusters would create a minimum of 50,000 jobs over the next decade, his department stonewalled repeated requests to explain how this number was arrived at or to describe the assumptions behind it. Perhaps it’s just a guess.

The other major pool of money that Bains has is the $1.26-billion over five years in his Strategic Investment Fund. It is not so much new money but rather combines a number of older funds supporting the aerospace and automotive industries and funding technology demonstration projects. The funding is now available to a wider range of industries for support of $10-million or more for major innovation projects. So far it has funded 16 projects totalling $286.2-million. This is not a new approach—Ottawa has been doing this kind of thing for several decades.

Perhaps the most important sector initiative in Bains’ portfolio is the $125-million Pan-Canadian Artificial Intelligence Strategy, with the funding to be divided between university-based AI research institutes in Montreal, Toronto, and Edmonton. Canada has reason to be proud of the quality of its AI research and talent, making this a sector worthy of support. But the risk is that much of the benefit will accrue to U.S. Big Tech companies like Apple, Amazon and Microsoft, which are setting up R&D branch plants in Canada to hire Canadian talent and acquire promising AI startups, developing intellectual property for their U.S. parents, rather than seeing Canada’s AI investment leading to successful scaled-up Canadian AI companies developing jobs and wealth in this country.

This points to a wider problem. While there is much political infatuation with start-ups, the real challenge is to grow the best startups into scaled up companies generating sales of $100-million or more so they can become sustainable Canadian businesses and establish a global presence. An initiative to facilitate the scale up of companies is still a gap in innovation policy. Without successful scaling of our best startups they will die or be sold to foreign corporations, with Canada losing the potential benefits of their success. In fact, the Trudeau government froze for its first two years the base budget of Canada’s most effective programme helping small and midsize businesses developer advance their technologies, the Industrial Research and Assistance Program. Budget 2018 did allocate an additional $700-million to IRAP over five years. But this is far less generous than it sounds because the government has assigned it business grants of up to $10-million that used to be handled by the Strategic Innovation Fund.

While the Trudeau government’s initiatives are certain to have some positive benefit for Canada’s innovation capacity, whether they will go far in closing our innovation gap with the world’s leading innovation nations is another question. Here the jury can only be out because it is simply too soon to tell. In the meantime, let’s have less boasting about Canada as a global innovation superstar.

David Crane can be reached at crane@interlog.com.

                The Hill Times

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