Government still playing catch-up on industrial policy

Peter Josty
October 26, 2022

Not for several decades has a Canadian federal government shown any coherent and sustained interest in policy at the industry level. This includes cultivating what today we more commonly refer to as “ecosystems” — sustainable industrial environments that can nurture and expand high-growth enterprise at all scales over the long-term.

Such ecosystems are essential for anchoring and maximizing returns from public and private investments in research and innovation. Canada is unique in the G7 in its reticence to embrace contemporary models of industrial policy, which simply organize and coordinate public and private sector actions and investments towards mutually defined societal needs, such as environment, energy, health, education, housing, and transportation.

But significant signs are emerging that our major established and emerging industries are not at all reticent about renewing our commitment to industrial policy, and that they understand all too well the stakes of not doing so. This is indicated strongly in three recent reports.

Industrial policy is most commonly motivated by some combination of crisis and opportunity. In Canada’s New Economic Engine, from the Trillium Network for Advanced Manufacturing and Clean Energy Canada, we see an industrial development strategy motivated by the climate crisis.

This document targets existing and emerging Canadian strengths in electronic vehicle (EV) batteries. Starting out with an assessment of the nature, scale and urgency of the opportunity, the strategy builds out from an assessment of the existing Canadian capacity to respond — focusing on the competitive advantages Canada could deploy right now in this emerging industry. The result would leverage Canada’s current, highly skilled workforce in automotive component manufacture and assembly. This resource would be integrated with emerging knowledge-intensive strengths in areas like critical minerals and recycling, with the overall goal of yielding abundant clean energy and access to the US market.

Most significantly, from the “ecosystem” perspective, this strategy encompasses every stage of the EV battery supply and production chain, from mineral exploration, extraction, and processing, to cell and module manufacturing, EV assembly, and recycling. Thus it encompasses the vast bulk of quickly productive knowledge transfer and R&D opportunities. Most significantly, the main goal is to develop a sustainable high value presence in global markets for Canadian designed and manufactured EV battery systems and services. All of this would be facilitated and supported by coordinated actions at the industrial, legislative, regulatory, financial,  and trade levels.

Trillium Network’s industrial policy is “textbook”, as it pertains to one emerging product group. At a regional level, Define the Decade, from the Business Council of Alberta, while not oriented to laying out a coherent industrial strategy as such, nevertheless incorporates many of the same ideas. Its recommendations are motivated by the need to transition a highly skilled and educated workforce from an oil and gas sector orientation towards new industrial opportunities.

A centerpiece of the approach is an industrial development agency modelled explicitly on the Alberta Oil Sands Technology and Research Authority. Ironically, this 1990s agency expanded the potential of the province’s fossil fuel sector, but it nevertheless stands as a good example of how effective policy models can be repurposed.

Restart, Recover and Imagine Prosperity for All Canadians, from Canada’s Industry Strategy Council (an advisory group of Industry, Science, and Economic Development Canada) is far more ambitious — a proposals for developing a comprehensive national industrial policy. The motivation is post-Covid economic recovery, but the Council suggests the pandemic can serve as a lever not only to restart the national economy, but to fix many chronic deficiencies that inhibit Canada’s ability to more fully embrace emerging economic opportunities. The objective comes with this stated challenge:

“Canada must develop a true postpandemic industrial strategy and this strategy has to be implemented through an ambitious growth investment plan. This would set a precedent. But given the magnitude of the crisis, we strongly believe that this is the appropriate response. We need Canadian companies to be global leaders where we can succeed.”

Beyond these few highlights, the detail in these and other reports tells us a great deal more about how Canadian business and industry is envisaging the public and private sector relationship in restoring and energizing our economy. Together, they contain many of the acknowledged key elements of effective industrial policy as pursued by our competitors:

  • They are grounded in the establishment of advanced new domestically anchored production capabilities, in both manufacturing and services
  • They start with what can be accomplished now, with existing or near-horizon technologies and industrial capabilities
  • They situate R&D as an essential ongoing function within the production chain, not as some external force
  • They regard basic research as driven forward by how knowledge is applied
  • They treat intellectual property as investment capital, not as a rent-producing asset
  • They place price-making over price-taking as a fundamental investment criterion.
  • They conceptualize successful new company formation and growth, primarily as the product of new industry formation
  • They welcome the public sector role as an active collaborator, a rule maker and market facilitator, rather than as a passive provider of non-targeted “conditions for growth”

Canadian business and industry seems to be getting the message. It is high time governments started listening to them.

This article was co-authored with Richard Hawkins, Retired Canada Research Chair in Science, Technology, and Innovation Policy at the University of Calgary. Peter Josty is Executive Director of The Centre for Innovation Studies (THECIS), a Calgary-based not-for-profit research company specializing in innovation and entrepreneurship. In addition to working in private research and business development, he holds a PhD in chemistry from the University of London and an MBA from the International Institute for Management Development in Geneva.

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