Parsing the problem of Canadian innovation

Peter Josty
September 14, 2022

By Peter Josty

Canada generally ranks poorly for innovation in most international comparisons. For example, it comes in at #16 globally in the World Intellectual Property Organization Global Innovation Index and 6th among the seven G7 countries.

Much has been written about our country’s shortcomings in this regard, but a new book Ideas, Institutions and Interests, casts the subject in an interesting light. It is a rare example of a non-partisan look at Canadian innovation policy at the provincial level. It has a chapter for each province and the territories, and its authors are mostly academics from across Canada (including me).

The value of a book like this is that it does not provide “the answer” to Canada’s innovation problem. Instead, it documents approaches taken recently, assesses what worked and what didn’t, and stimulates further discussion.

Here are some of the topics that caught my attention from the Chapter on “Conclusions and Lessons Learned”:

  • Canada’s innovation performance. The authors describe the conundrum that while Canada has numerous advantages — including a stable political situation, well-educated population, broad socio-economic advantages such as multiculturalism, a merit-based immigration system, broad social safety nets and good social mobility — it nevertheless performs poorly on innovation. Companies underperform on R&D spending, companies are not scaling, entrepreneurs tend to move to other jurisdictions, and so on.
  • Evaluation of policies. One of the biggest weaknesses in the Canadian policy system is the almost complete absence of structured evaluation of any policy ideas. The authors note that there are established methods that exist around the world (for example, the Maryland Scientific Methods Scale) to support policymakers in delivering evidence-based policies. The provincial chapters show no evidence of any substantive assessments of programs to support innovation.
  • Natural experiments among provinces. The authors note that provinces have powers over many of the drivers of innovation, so comparing the performance of respective provinces — reflecting political differences and dynamics across the county — is a natural experiment to determine what works best. The book therefore aims to document what can be regarded as one of the advantages of a federal structure in Canada.
  • Drawbacks of the federal structure. The authors also note that as powers influencing innovation are very diffuse across Canada, not much happens unless two or three levels of government are aligned. Generally, the federal government sets the agenda, and the provinces and territories selectively respond. This makes it hard to get support for Canada-wide efforts.
  • Diffuse focus. A review showed more than 90 program streams to support business innovation, across 20 different federal organizations. Each province also has numerous support programs, so overall there are a vast number of support programs across the country, which spreads the support very thinly.
  • Broad-based support. The authors note that there is reluctance among provincial governments to pick winners. As a result, most support programs fall back on offering general support to whichever firms can access their programming. This leads to efforts that are more incremental than transformative.
  • Big bets can pay off. One example of a sustained long-term effort to support innovation cited in the book is the Alberta Oil Sands Technology and Research Authority (AOSTRA), a provincially-led initiative that developed the Alberta oil sands and made a material contribution to the Canadian economy. Other examples include ocean industries in the Atlantic region, digital industries in New Brunswick and PEI, aerospace and transportation in Quebec, and agri-food in Manitoba and Saskatchewan.
  • SME focus. The authors note that Canada’s private sector is dominated by SMEs (small and medium sized enterprises), while many large companies are foreign-owned. This explains why many innovation programs are aimed at SMEs and start-ups, and why success stories are usually about small businesses doing well, while reports of innovation among Ontario’s branch plant auto industry are seldom heard.
  • Bias towards technological innovation. The book notes that Canadian innovation support programs have a strong bias towards technological innovation at both the federal and provincial levels. “The evidence that a science-and-technology-focused research funding strategy will generate innovation in a predictable fashion is slim to none,” the text concludes. This bias has a couple of consequences. First, it mainly focuses on cities, and ignores rural areas and the territories, leaving out 98 percent of Canada’s geography and 40 percent of its people. Secondly, it neglects the voluntary, cultural, and creative sectors that generated $169.2 billion in 2017, which was 8.5 percent of our GDP.
  • Impact of resource industries. Despite the strong orientation of policy towards SMEs, the authors note that adoption of innovation by large resource-based firms yielded most of the improvements. This is not surprising, as a 1 percent increase in productivity at a $5 billion company has more impact than a 100 percent increase in a 30-person startup.
  • Challenge of implementation. While provinces and territories recognize the need to create the conditions that lead to innovation-driven economic growth, their ability to implement policies and programs has been more challenging. Part of the reason for this, as the authors note, is the relatively low staffing levels within provincial governments of innovation specialists with sufficient experience and expertise.
  • Role of Universities. The authors note that universities, often seen as a significant source of ideas that lead to commercialization, are not evaluated provincially or federally in a way that would account for their net economic contribution. The importance of universities in this regard is consequently overestimated, in spite of the fact that research there costs about $13 billion a year, but generates less than $75 million annually in commercial technology transfer activity.
  •  Institutional gaps. The authors identify a number of institutional gaps in Canada with their recommendations:

    • Raise Canada’s research and development effort. This would require support at both federal and provincial levels.
    • Develop more targeted and sustained innovation efforts. These have been demonstrated to generate successful results, such as AOSTRA.
    • Improve threat identification and hazard mitigation that can produce dual-use technologies for civilian security and defence applications.
    • Focus more on digitization. This has been described by former Bank of Canada Governor David Dodge as an “absolute imperative”. It is an area where Canada has lagged behind other countries.
    • Avoid misalignment between federal and provincial innovation policies, particularly for energy and climate.

If any of this strikes a chord with you, get a copy of the book to learn more.

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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