Canada is Funding its Own Economic Decline

There is a fundamental misunderstanding of where value comes from that is propelling where the federal government puts its capital. In November, the government reannounced a $40-million investment in Nokia, backing the Finland-based telecom giant’s expansion of its Ottawa facility, a move expected to create 340 jobs and boost research and development in advanced 5G networking. The announcement was presented as an exciting investment in Canadian innovation. But to me, it was the latest chapter in more than two decades of erosion of Canada’s economic prosperity and sovereignty.

The problem is simple and yet deeply destructive. Instead of investing in Canadian firms to help them develop, own and sell Canadian intellectual property, governments have poured billions of dollars into foreign multinationals to set up domestic branches, while most of the value those companies generate, particularly through the ownership of their IP, flows out of the country. We get the jobs. Someone else gets the wealth.

During my time as president of the Council of Canadian Innovators, a network of homegrown tech companies, I heard the same concern over and over again. Canadian founders struggle to access patient, growth-stage capital from both government and the private sector, limiting their ability to compete globally and build out their own research and development capabilities. At the same time, governments at both the federal and provincial levels have shown a far greater willingness to support foreign competitors. 

There are numerous examples just in the past three years: in 2022, Ottawa and Ontario pledged roughly $1 billion to help Stellantis update its assembly plants in Brampton and Windsor; in 2024, governments announced $5 billion in assistance for Honda to build a comprehensive electric vehicle supply chain in Ontario, including an assembly plant and a standalone battery manufacturing facility in Alliston. 

Related: The Doom Spenders

Some of these investments extend across decades. For instance, Quebec has financially backed the French video game giant Ubisoft for 20-plus years. Between 2013 and 2017 alone, the company generated $634 million in net profits while receiving $615 million in government subsidies. In effect, public dollars meant to support innovation were flowing straight into the profits of a foreign-owned company.

There’s no question that these investments create jobs, and those jobs matter. But the real wealth in these industries doesn’t sit on the factory floor, which is increasingly being occupied by robots. It sits with the owners of the technology underpinning those products. In the case of Stellantis, Canadian workers were not even allowed to install certain types of robotics equipment despite having the skills to do so, because the company wanted to prevent that transfer of technological know-how. Global firms have learned from what happened in China, where companies like Apple built their products and, in doing so, helped train a workforce that later went on to build competing domestic firms like Huawei. Today, multinationals carefully guardrail their most valuable technologies to ensure that kind of competition never materializes.

Betting public money on foreign firms also comes with risks. At the first signs of trouble, they can pull out, leaving our governments at the federal and provincial level exposed. Consider cases like Northvolt, the Swedish battery maker that was meant to build a massive plant in Quebec that would provide 3,000 jobs and add $1 billion to the economy. The provincial government tied its industrial strategy to the company’s success, only for the project to collapse when Northvolt ran into financial trouble and filed for bankruptcy. Quebec now says the company owes it $260 million, a failure so politically damaging it is widely seen as one of the reasons Premier François Legault recently stepped down. Investing in Canadian-owned companies reduces those kinds of risks, because it gives us far more control over both the economic outcome and the public interest.

At its core, Canada’s challenge is that we failed to recognize the shift from tangible to intangible wealth over the final three decades of the 20th century. Value is no longer captured primarily through labour in the way it was in an industrial economy. It’s captured through IP. Companies like Microsoft, Amazon and Google derive their power not from the size of their workforce, but from ownership of algorithms, data and proprietary technologies, and their ability to extract rents from those assets. 

The countries that are succeeding today are the ones that have globally headquartered firms that lead their markets. Instead, Canada has doubled down on a race to the bottom, competing on labour costs and subsidies while ignoring ownership and scale. If you’ve ever wondered why Canada’s productivity has stagnated, why highly skilled workers continue to leave for the United States, or why so many people feel like they’re falling behind economically even while working harder than ever, this is a big part of it. The result is a country that feels perpetually strained and under-resourced, even as billions of public dollars are spent in the name of economic development.

Related: American Carmakers Are Leaving. Bring on the Chinese EVs.

If we want lasting prosperity and true sovereignty, we have to recapitalize Canada for a global economy that has changed. As the Prime Minister argued in Davos, the old assumptions that governed trade and investment no longer apply. There has been a rupture. In its latest budget, the federal government said it expects up to $1 trillion in combined public and private investment by 2030 to support infrastructure projects and research and development. But we need to align our policies and capital so that the $1 trillion serves Canadians first.

That means building companies that create the goods, services and technologies we need at home, and that the rest of the world wants to buy from us. The solution starts with creating the right conditions for our investments to support Canadian firms from inception to maturation and beyond. That requires something we’ve avoided for decades: a coherent strategic industrial policy.

There are two straightforward guidelines that should shape that policy. The first is ownership. You cannot sell what you do not own. If Canadians do not own what they are creating and commercializing, we should not expect to reap the long-term benefits. That’s why any serious assessment of public investment should begin with a basic question: are we supporting Canadian firms, large or small, that own what they sell? If the answer is no, then it is difficult to argue that the investment serves a national economic objective. By that standard, the electric vehicle plants owned by Honda or Stellantis would not qualify. Jobs matter, but ownership determines where value ultimately accumulates.

This principle needs to act as a counterweight to the pressure governments face from business advocacy groups. Organizations like the Business Council of Canada play an influential role in shaping policy, but governments need to look carefully at who sits at the table and whose interests they represent. As Prime Minister Carney has said, we are in a trade war, so when multinational subsidiaries like IBM Canada or Google Canada are members, they are Canadian in name only. The policies they tend to advocate for, whether around labour, market access or IP, overwhelmingly benefit parent companies headquartered elsewhere. That doesn’t make those firms villains, but it does mean their priorities should not be mistaken for a Canadian national strategy.

The second guideline is scale. Canadian firms struggle to grow into global leaders, and one of the biggest reasons for that is the flaws in government procurement. Governments are powerful customers. When they buy domestic goods or services—from military hardware to educational and medical technologies—it sends a signal that moves markets. Too often, Canadian firms fail to sell to our governments because procurement processes are complex, risk-averse or structurally biased toward incumbents that are often foreign-owned. 

Aligning those two guidelines to prioritize Canadian solutions would have a ripple effect across the economy. If Canada wants more private investment in domestic companies, the answer is not to appeal to investor patriotism. At the end of the day, Canadian investors will put their money in companies that offer the highest returns. When governments lead by creating the conditions for Canadian firms to succeed, so that their products are as good as or better than foreign alternatives, private investors follow. Large banks, major telecom companies and other anchor institutions will back homegrown companies, creating the demand and capital flow that allow them to scale rather than stagnate.

Making these policies a reality would not require Canada to start from scratch. We already have world-class strengths. Two of the most influential pioneers of AI, Geoffrey Hinton and Yoshua Bengio, built their work here, embedded in Canadian universities. In quantum computing, Canada is home to four of the world’s leading companies, competing at the frontier of a potentially massive market that is still taking shape. These are precisely the kinds of emerging industries where strategically aligned capital can determine who owns the future. 

Canada can also look to Taiwan, a much smaller country with a world-leading semiconductor industry that has made the country indispensable to the global economy. That indispensability has given Taiwan powerful allies and protected its sovereignty from the threat of political and military influence from neighbouring China. This points to a deeper benefit of recapitalizing Canada properly. If Canada builds firms and technologies the world depends on, governments will think twice before imposing arbitrary tariffs or flying balloons over our airspace to spy on our citizens. Our economic strength will become a form of security.

But if we fail to act, we will continue down a path of economic erosion and increased vulnerability. We’ll risk selling off our most valuable IP in areas like AI or biopharma, only to buy it back later at a premium. There is a responsibility now to drastically rethink public investment in Canada. The rewards we’ll reap are higher standards of living, stronger public services and a more resilient economy. And when external actors, whether allies or adversaries, attempt to pressure our country, we will have something we currently lack: real leverage to defend Canadians and our values.

Benjamin Bergen is the CEO of the Canadian Venture Capital and Private Equity Association