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Canada is lagging on innovation—and the Liberals aren’t helping

Opinion: Ottawa’s activist, government-centric approach won’t change Canada’s struggles around innovation or productivity
Mischa Kaplan
Sept. 24, 2014 - Toronto, ON - Ryerson University - Entrepreneurs (of jamcam) in a meeting inside the DMZ, an incubator for innovation/entrepreneurialism.
Prime Minister Justin Trudeau takes part in a virtual reality tour along with 3D printing technology at the new Google Canada Development headquarters in Kitchener, Ont., on Thursday, January 14, 2016. (Nathan Denette/CP)

Mischa Kaplan is an Ottawa-based economic development advocate, a regular contributor to the Ottawa Citizen, and an instructor at the Algonquin College School of Business.

The release last week by Statistics Canada of their monthly January jobs report—which showed that Canada lost nearly 90,000 jobs in the first month of 2018—will make for excellent fodder amongst critics of the federal government’s approach to economic development. But for a far better indicator of the health of Canada’s economy, opposition politicians should consider the disturbing decline in this country’s innovative capabilities, as evidenced by Bloomberg’s recently published 2018 Innovation Index. Far from being the “nation of innovators” so often touted by Justin Trudeau’s Liberal government, the Bloomberg report is a stark reminder of one simple fact that negatively impacts a lot more than just jobs: our country is suffering from an innovation crisis, and it’s getting worse every year.

The Bloomberg ranking is based on seven “innovation-related” criteria, including R&D intensity, patent activity, and tech density. At number 22, Canada is one of only two G7 nations—along with Italy—that fail to make what Bloomberg calls the “top-tier,” which includes the Nordic countries, the remaining G7 economies, and other economic powerhouses such as Singapore, Australia, and South Korea. When you consider that the overall innovation score assigned to each country puts Canada only marginally ahead of Russia, the extent to which the Canadian economy is behind in this area is striking. In some cases, diving into the data makes the situation seem even worse. For instance, in terms of “tertiary efficiency,” a measure that combines several individual indicators related to post-secondary education, Canada crashes in at number 45, just a few spots ahead of South Africa and Morocco. In fact, the only criterion in which Canada breaks into the top-tier is concentration of R&D researchers, and even then we fail to make the top ten.

And the worst thing? Canada has fallen two spots since last year.

READ MORE: Innovative science research in Canada is dying a silent death

If you’re skeptical about an “innovation index” meaning much in a practical sense, then consider this: in terms of productivity (measured by GDP per hour worked), Canada ranks far below the G7 average—a staggering 12 per cent below, in fact—and only marginally above that of the broader OECD. Widely considered to be a key outgrowth of an innovative economy, and undoubtedly a key ingredient in helping to foster future innovation, productivity is also one of the Bloomberg index’s seven criteria.

The result of Canada’s low level of productivity is, among other things, a relative weakness in GDP per capita, as compared with other members of the G7 and OECD. Measured in this capacity, Canada has been underperforming other advanced economies since at least the 1980s, and even more so since the 1990s, according to the Conference Board of Canada. In 1970, Canada’s GDP per capita was nearly 6 per cent higher than the G7 average; today, it is 4 per cent lower. In fact, between 1980 and 2012, the GDP per capita gap between Canada and the U.S. tripled, and Americans now enjoy a 16 per cent higher rate in relative terms.

More than the loss of 88,000 jobs, this relatively unproductive workforce is the real face of Canada’s innovation crisis.

The solution to this mess is not an easy one. Technology advocates might suggest that the country’s firms would benefit from better access to growth capital, while municipal politicians might say that it’s all about an endemic and enduring lack of investment in key public infrastructure projects. Social-justice advocates (including our prime minister) will point to the need for “inclusive growth”—incorporating more women, Indigenous groups, and visible minority populations into the workforce. Undoubtedly these points are all relevant, but the problem is complex and requires much more than one simple policy prescription.

READ MORE: How to fix Canada’s innovation conundrum

Unfortunately, the current government’s solutions have mostly involved doing the one thing that is most unlikely to foster innovation: adding a more robust and activist role for Ottawa. In its third and final report, released this past December, Trudeau’s much-celebrated “Advisory Council on Economic Growth” summarized its eight recommendations for “resetting Canada’s growth trajectory.” Of these, fully half involve creating a new governmental or quasi-governmental agency (such as the Canada Infrastructure Bank), while the remaining are so ambiguous as to be potentially meaningless (for example, creating a foreign direct investment strategy “in line with the country’s economic growth strategy”). The fact that the Liberals have already given the green light to several of these recommendations suggests that the Trudeau government has every intention of making good on the Advisory Council’s recommendations.

Ottawa’s “Innovation Supercluster Initiative,” which will see the federal government invest nearly $1 billion to create five separate “regional innovation ecosystems,” is just the latest example of the federal government’s boundless optimism in its own ability to foster economic growth. The concept has been touted as having the potential to “usher in an unprecedented era of innovation and progress,” according to Innovation Minister Navdeep Bains. The idea, apparently, is to create what Bains calls a “made-in-Canada Silicon Valley.” (Coincidentally, the $950 million that the government plans to spend building superclusters is roughly the same amount as what the Auditor General reckons will be required to fix the Phoenix pay fiasco. But of course that has nothing to do with Ottawa’s ability to think innovatively.) Perhaps someone should tell Mr. Bains that Silicon Valley somehow miraculously developed in the most unexciting of ways: a group of highly innovative and productive companies created products that consumers wanted. Private capital poured in. Markets responded. While it certainly helped to play a backroom role in the region’s rise, Washington was by no means the key development orchestrator.

READ MORE: Paul Wells on the winners of the Liberals’ supercluster initiative

Productivity and innovation are mutual enablers, and addressing Canada’s innovation crisis relies on first taking steps to ensure that our workforce is a global leader in productivity. If the federal government really wants to take a leading role in fostering a more innovative national economy, then it should abandon its Ottawa-centric attitude and turn its attention to policies that have been shown, time and again and across multiple geographies, to encourage productivity. Such policies might include providing more incentives for companies (both large and small) to invest in R&D and capital infrastructure, encouraging post-secondary institutions to better tailor their programming to meet market demand in terms of subjects and skills, and making Canada a more attractive country for foreign or start-up companies to invest in by deregulating industries that have no business being as regulated or as protected as they are, such as telecommunications, airlines, and broadcasting.

These recommendations were in fact cited by the Organisation for Economic Co-operation and Development (OECD) in its 2016 annual Economic Survey of Canada. Naming a lack of productivity as a major impediment to future economic growth, the OECD called for Canada to pursue a platform of deregulation while also reducing interprovincial trade barriers and providing more incentives for small- and medium-sized companies to innovate and invest.

Unlike the Liberals’ Advisory Council, none of the OECD’s recommendations involve an expanded role for government. Instead, the OECD’s report suggests that the best way to achieve greater productivity is for government to foster a more market-friendly environment. And being perhaps the world’s most comprehensive aggregator of economic data for the largest and most advanced economies on the planet—and having tracked such data for the last five decades—one might suggest that the OECD knows a thing or two about improving productivity and making an economy grow.

Given that we’re now two years into the Liberals’ mandate, it seems unlikely that we’re going to see a reversal of Ottawa’s government-centric innovation drive. Unfortunately for Canadians, by the time this approach catches up to us, we’ll have a lot more to worry about than the loss of 88,000 jobs in one month.