R$2023: Advancing policy towards industrial change

Canada needs to develop an industrial policy for advanced industries that do not include natural resources, say internationally reknowned scholars who participated in Research Money’s annual conference in Ottawa in April.

The scholars say the policy is needed to offset Canada’s steady, albeit slow economic decline relative to other G7 countries since the mid-1990s. Historically, the Canadian economy has relied on natural resources like oil, gas, minerals, forests, and fish.

“You want to focus on advanced technologies — those are the critical ones,” said Robert Atkinson, founder and president of the Information Technology and Innovation Foundation, a U.S.-based think tank, during a panel discussion on industrial policy and innovation performance. “And, you want to focus on industries not based on natural resources. Now, this is not a knock on oil or gas but, basically, you can’t change the amount of oil and gas and minerals that you have.

“You have those and you can export them, and good for you, but they’re not really the basis of advantage in advanced industries, added Atkinson, who called for a Canadian resource excise tax to help fund research and development.

Canada lags in all advanced industry sectors

A dual Canadian-American citizen, he said Canada needs an industrial policy that emphasizes advanced technologies, such as microchips, that are traded globally. In 2022, the ITIF completed a study that compiled the Hamilton Index of advanced-industry competitiveness among OECD countries, based on specific sectors’ performance between 1995 and 2018. Researchers determined that Canada’s global market share had declined in all advanced industrial sectors, trailing every other country studied, and falling under the global average in each case.

Just to get up to the global average, Canada would need to boost its advanced industrial output by $60 billion per year, he said.

Dan Breznitz, a University of Toronto political science professor and innovation specialist who serves as a senior fellow on the Canadian Institute for Advanced Research, said Canada also needs an innovation policy stretching from idea creation to the finished product. For some three decades, he contended, Canada has earned a failing grade in everything related to innovation.

“In order to be competitive, you need to be acting in a competitive market where you have competition,” he said.

Breznitz spent the past year as a visiting economist with the federal finance department. He helped develop the government’s new Canada Innovation Corporation (CIC), which is designed to increase investment in research and development, and help businesses in all sectors compete in the rapidly changing global economy. He said Canada’s status as a G7 economy is a myth, and the country is not firing on all economic cylinders, due to its reliance on natural resources as a primary driver of growth. Canada has everything it takes to be a G7 economy, he argued, including the best educated workforce, top universities, and one or two companies that excel globally; nevertheless, leadership in Ottawa denies there is a problem, because the country's decline has been very slow.

“We are fast not becoming a G7 economy and we need real action — not nice-to-have action — and we need to take really tough decisions,” he said.

To develop advanced industrial and innovation policies, he charged, the federal government needs to envision where it wants Canada to be in relation to the global supply chain 10-15 years from now. Breznitz insisted federal leaders have “no clue” on where they want specific industries to be in the future.

“But if you constantly refuse to say how you want to look like in 15 years, you're basically going into a very stormy sea with a leaking ship,” said Breznitz.

More value-added products needed

Sara Wilshaw, Canada’s chief trade commissioner, said Canada has been hindered by its geographic location and small population, forcing a reliance on natural-resource exports for economic growth.

When it comes to federal industrial policy, she suggested, Canada now needs to move up the value chain and produce more value-added products. Ottawa is much more deliberate than it has ever been about helping industry scale up globally from a Canadian base.

In contrast to Atkinson and Breznitz, she admitted to not being depressed about Canada’s prospects. She noted that the federal trade commissioner service has 1,500 people working in 160 countries.  Canada could also benefit from its Indo-Pacific strategy, numerous partnerships — including some in the digital economy —  as well as free trade deals and efforts to get “intermediate goods” into the supply chains of friendly partners in the face of trade disruption due to global turmoil.

“Canada’s just not big enough to dictate terms around the world,” said Wilshaw. “So, we need those friends.”

Universities not enough

Iain Stewart, president of the National Research Council of Canada, said an advanced industrial policy needs to include the private sector in research and development.

“The point is that universities are not enough,” said Stewart, who moderated the panel.

He asserted that Canada needs an advanced industrial policy that creates and sustains export-capable companies, taking advantage of the increased trade partnerships.

“Do we need an industrial policy? Yes, but we need an industrial policy for Canada's reality, which is that we have an absence of a strong private sector.”

Atkinson praised Ottawa for creating the CIC. He called for Scientific Research and Research and Development (SR&ED) investment tax credits — comprising the biggest form in Canadian innovation funding — to be expanded and reformed. He also wants Ottawa to lessen firms' dependence on these tax credits by providing less than one dollar for each dollar invested in research and development, as the U.S. government has done. According to Atkinson, President Joe Biden’s government provides a tax credit for 50 cents on the dollar

Atkinson also called for Canadian university research funding to be tied to commercialization performance, which can be measured through such “clear metrics,” as the number of patents awarded. He would also like to see Ottawa provide more funding to polytechnics for applied research.

In order to beat the “Chinese challenge,” he said, Canada also needs to link its advanced innovation and technology system tighter with the U.S., through “Manufacturing Canada Institutes” tied to U.S. institutes, whereby researchers and companies can participate in both countries’ government funding programs.

“We have to be working much more closely together,” said Atkinson.

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