Canada needs a serious innovation-investment strategy, time is running out

TORONTO—U.S. President Joe Biden likes to boast that since he assumed office in January 2021 the United States has created 700,000 new manufacturing jobs. By way of comparison, Canada has created just 39,000 new manufacturing jobs. Moreover, the Biden administration has succeeded in persuading Congress to pass three critical laws that together were designed to catapult the U.S. into a reinvigorated industrial power that would leave us trailing in its wake. But unlike the U.S., we still don’t have a serious innovation-investment strategy, despite years of boasting that we did. Finance Minister Chrystia Freeland was forced to acknowledge this in her fiscal update 2022 report on Nov. 3. Manufacturing production in Canada in August 2022 was still below what it was in pre-COVID August 2019. The same was true for overall industrial production in Canada—lower in August 2022 than in August 2019. We have a serious problem of low innovation, low investment, low productivity—and a level of wealth creation that will make it increasingly difficult to pay for the things we want to do as a country in the years ahead. The most important way to fight inflation and to deliver a better country is by investment in intangibles, such as research, training, branding, software, pursuits of new markets, business organization and pursuing new knowledge, and by tangible investment in new technologies, new machinery and equipment, and new or expanded factories. Overall, we are falling behind in most of these areas, despite heroic exceptions by some entrepreneurs. If we are to prosper in the future and provide both good jobs and prosperity for families and generate the wealth we need to provide the public goods we seek, we have to become much better as producers of goods and services that we can sell around the world, based not on a branch plant economy, but on Canadian-owned and developed proprietary technology and other intangible assets. As Freeland admitted in her fiscal report, Canada has relied too much on the oil and gas industry to keep our ship afloat. But “as the world moves towards net-zero, global investment growth in that sector has declined, and the historical weakness of business investment in Canada has become more apparent,” Freeland acknowledged. Canadian businesses have invested in information and communications technologies at half the rate of U.S. businesses, and research and development intensity has fallen over the past two decades to a level about one-third of the U.S. level. “What Canadian workers need is a government with a real, robust industrial policy,” Freeland said in the House on Nov. 3, “a government committed to investing in the net-zero transition, to bringing in new private investment, and to helping create good-paying jobs from coast-to-coast-coast.” This is what the government has been doing, Freeland said. But has it? If it had, we would surely be more productive, we would have higher industrial output, higher levels of innovation and more investment. To be sure, a lot of money—billions of dollars—have been put up to encourage investment, especially green investment for a low-carbon economy. The fiscal outlook promises more, though it is still more about promises than action. The fiscal update does promise an investment tax credit for clean technologies which is clearly designed to counter U.S. subsidies. “Significant additional actions will be announced in Budget 2023,” Freeland promise. But the problem is the U.S. has a clearly defined strategy that is already up and running. Details of the Canada Growth Fund, first promised in the 2022 federal budget, are still vague, and clearly much more will be needed before it is up and running, and we can see what it is likely to accomplish. Details of the proposed Canadian Innovation and Investment Agency, which were expected in the fiscal update, have been delayed. Details in changes in the tax incentives for R&D will have to wait until the 2023 federal budget. More consultations are planned to develop Canada’s advanced manufacturing competitiveness. And here is the problem. While our government has big ambitions—“we can lead to global economy in a way that far exceeds our footprint as a country of just 39 million people,” Freeland boasted to Parliament—it consistently fails on delivery. It is hard to be confident that this time will be any different. Action speaks louder than words and time is running out. David Crane can be reached at crane@interlog.com. The Hill Times