Canada's Path Forward

My recommendations on delivering a more inclusive and prosperous Canada.

Happy Wednesday!

Today, I want to finish up my roundup of my latest report, Building an Inclusive and Innovative Canada: Responsible Innovation for Shared Prosperity. In the first two parts, I explored what innovation is and how not all innovation is necessarily good for society and the economy. Given that, I believe it is essential to focus much more on shaping the direction of innovation to ensure we get the outcomes for real people we want to see. Then, in the second part, I dived into the array of diverse challenges that we face as a country and how they intersect with the need for more intentional innovation.

You can check out those summaries here if you’ve not read them yet:

In this last part, I’ll cover how Canada has approached innovation policy over recent decades before finally turning to recommendations on the path forward.

What is Canada’s Approach to Innovation?

If you are a reader of this newsletter, I likely don’t have to recap all the ways in which our innovation performance has been lacklustre for a long time. You know that well enough. Similarly, you’ll have seen me cover how our inclusive innovation outcomes are equally poor.

I believe that a significant driver of these issues is a misdiagnosis of our innovation problems.

Since the turn of the century, Canadian innovation policy has emphasized providing inputs into innovation — research, talent and capital.

Since at least 2006, various plans, budgets, and programs under both Liberal and Conservative governments have consistently focused on Canadian strengths, such as research and talent, and weaknesses, such as struggling productivity and commercialization.

Flowing from that analysis, all three major federal science and innovation strategies, 2007, 2014, and 2017, were marked by emphasizing supply-side policies, leaning heavily on improving talent, better directing research, and providing capital to transform Canada’s direction and enable more innovation.

As a result, the federal innovation landscape is heavily weighted towards those supply-side, input-focused measures. The single most significant measure is of course SR&ED and in total, indirect tax supports account for around 70% of Canada’s total expenditure on business R&D. As analysts from Statistics Canada note, Canada’s indirect business R&D support have been “historically high and one of the most generous in the world, yet its business expenditures on R&D were lower than the OECD average.”

Not good.

While there has been a move towards greater directionality in innovation supports and some more systems-focused measures, such as through the Superclusters, the Canada Clean Growth Fund, and the Canada Innovation Corporation, these measures have largely been either ineffectively rolled out or kicked into the long grass.

Another consistent feature of the federal approach to innovation has been the siloing off of traditionally understood “business” innovation away from innovation focused on “social” issues. While some efforts that focus on the latter were introduced, such as the 2018 “Inclusive Innovation: New ideas and new partnerships for stronger communities” report from ESDC, in practice, recommendations were not translated into action, and the linkages and dependencies between “social” and “business” innovation remain poorly understood, especially regarding actual outcomes for communities across Canada.

Unfortunately, the provincial picture isn’t much better. I firmly believe that the provinces don’t focus anywhere near enough on supporting innovative outcomes. This is a problem because in Canada’s heavily decentralized system, the provinces have many of the demand-side levers necessary to nurture better outcomes. What strategies and supports exist primarily fall into the same traps as federal policy.

The notable exception is Quebec, where the provincial government has taken a broader view of innovation's role and potential for shaping it. The most recent strategy, La Stratégie québécoise de recherche et d’investissement en innovation (SQRI²), emphasizes the importance of sustainable and inclusive research and innovation in supporting Quebec on a global scale and creating more economic and social wealth. While SQRI² covers many of the usual supply-side policies (increasing funding for research, improving access to capital, and developing talent), the strategy includes nods towards the role of the regulatory environment and the role of innovative solutions in solving societal challenges, as well as the role of the state in adopting innovations and improving government policy congruence. The province further integrates technological and business innovation with social innovation, supporting both through the Ministry of Economy, Innovation and Energy, and the Fonds de recherche du Québec (FRQ), in marked contrast to the silos that exist at the federal level.

With that exception, Canada’s continuing emphasis on innovation inputs is increasingly out of step with innovation policy trends globally. As the OECD has explored, many countries recognize the importance of shifting the orientation of innovation policy towards a greater focus on outcomes and inclusiveness. And as Neil Lee has explored in his excellent book Innovation for the Masses, “policies for innovation and shared prosperity are mutually reinforcing.”

What is the Path Forward?

Photo by Richard Bell on Unsplash

So, then, how can Canada build a more innovative and inclusive society? How can Canada build a growing, innovative economy that provides more for all? And how can Canada deploy innovation to address the challenges we face in ways that unleash the benefits and mitigate their harms?

There is no single blueprint for doing this. No set of recommendations can fully encapsulate the range of actions, steps, and instruments that must be understood and utilized to bring about the change Canada needs to see. If there is one repeated theme in my writing, it is that things are complex and we need to recognize that.

There is no single direction in which Canada’s innovation policy needs to move. As much as I argue that there is too great a focus on inputs into innovation rather than outcomes, supporting talent development, R&D, and access to capital is still necessary. Instead, policymakers must recognize that those are insufficient to meet Canada’s needs.

But we still need a direction to move in, and in the report, I made a few high-level recommendations for a path forward (some of which I’ll be fleshing out further in a second follow-up report):

1. Take a Values-Driven Approach to Innovation

We must focus more on the outcomes of innovation for our society and economy rather than just the inputs. As noted, inputs are still needed, however, they need to be calibrated with an eye to the desired results and the type of Canada and world Canadians want to live in in five, ten, or twenty years.

A values-based approach should be at the heart of federal policymaking. However, just as innovation does not stop at the edge of federal competencies, normative approaches must extend more widely. This approach must be polycentric, collaborative, and reflected across all of Canada’s innovation institutions.

To do this, we need to:

• Identify the principled goals of innovation policy in Canada through an inclusive, deliberative process

• Embed principled goals across the Canadian innovation system

2. Unlock the Potential of Canada’s Regions

Current policymakers do not do enough to tailor policies to different regions as part of innovation strategies. Local barriers are not fully understood or mitigated. Global trends and GVCs, where Canada’s competitive advantages lie, are poorly understood, as are ways to connect communities to them.

Doing innovation better involves taking a broader view of success. If policymakers view innovation success as just the creation of high-paying R&D jobs, then chances are Canada will pursue policies that lead to greater income inequality in a community and attract activities limited to R&D functions.

A thriving economy depends on attracting activities employing various people at different incomes and educational levels in different parts of the country — avoiding a polarization of the economy into the rich and a precarious underclass. Therefore, a more holistic view about what it takes for regions and communities across Canada to succeed should be embedded at the heart of Canada’s innovation policy.

To do this, we need to:

• Develop a National Innovation Framework that can be supplemented by Regional Innovation Strategies that implement an integrated federal–provincial–territorial framework with a shared vision and connective institutions, but with delivery tailored to regional needs and strengths. This requires an in-depth analysis of regional economies and a holistic approach to community well-being.

• Enhance local data accessibility and analysis by investing in granular data collection on regional economies and global value chain connections and equipping local policymakers with tools and training for evidence-based decision-making.

(The second report will flesh out what a more place-based approach would look like and provide a more detailed analysis of Canada’s various types of local economies.)

4. Achieve a Balance Between Transformative Innovation and Diffusive Innovation

Policymakers also need to consider the balance of bets on transformative innovation and those focused on encouraging its diffusion and adoption. We have seen various technological strategies, but these again focus on inputs into innovation, which aligns with much of Canada’s innovation policy, but limits the chance for the innovations to be more transformative.

Canada needs to bet on transformative innovation, but must back up those bets with the policies and institutional infrastructure required to grow successful industries around them and ensure that the benefits from those innovations are shared. There must be far more emphasis on diffusive innovation to capture the former’s economic and societal benefits.

To do this, we need to:

• Increase strategic investment in foundational research and commercialization with boosted funding for foundational research in key areas, coupled with policies to translate research into commercial products and services. This includes strengthening industry’s absorptive capacity and utilizing demand-side levers like strategic procurement.

• Emphasize diffusive innovation and technology adoption by developing programs and incentives to encourage the adoption and diffusion of existing innovations, particularly among SMEs, as well as address the systemic issues of weak incentives for business leaders to invest in the productive capacity of their companies.

4. Establish Congruence Across Policy Domains and Create the Capacity to Deliver

There will be trade-offs if the desired outcome is a more innovative and inclusive Canada. Innovation is not a net positive in and of itself. Innovation can cause great harm. Intentional decisions about the direction of Canada’s economy must be made, and decision-makers will need to make explicit and transparent choices about tradeoffs guided by a normative approach.

Innovation need not drive economy-wide inequality if sufficient redistributive policies are in place. This includes redistribution through the tax system, of course, but extends through areas such as the provision of education and policies that allow different communities across the country to benefit from cutting-edge innovation.

Capacity across different levels of government is required to achieve this. A more involved role for the state in shaping the direction and diffusion of innovation requires different skills, data, and institutions. While the federal public service has expanded rapidly in headcount over recent years, it is far less clear that federal state capacity has grown alongside it. At a time when Canadians face a huge array of challenges to Canadian sovereignty and prosperity, that urgently needs to change. Needless to say, austerity and governmental cuts are not the way to grow that capacity.

Instead of cuts, we need to:

• Integrate innovation policy within broader policy frameworks by aligning innovation policy with other areas such as education, housing, and welfare to ensure equitable benefits and remove systemic barriers. This involves interdepartmental and intergovernmental collaboration and potentially appointing Chief Science and Innovation Advisors across federal departments and provincial governments.

• Strengthen government capacity for intervention by building skills, data, and expertise within all levels of government. Enhance the capacity for strategic procurement and regulation, develop new institutions, and improve program evaluation and accountability.

Final Thoughts

Building an inclusive and innovative Canada will require a fundamental shift from the current input-focused approach to one that prioritizes outcomes, inclusivity, and regional needs. Innovation is not something that just happens. Canadians can shape how it is used and to what ends. Canadians can leverage innovation for broadly shared prosperity. To do so, a normative, values-driven approach that acknowledges the potential harms of innovation alongside its benefits and nurtures collaboration must be adopted across all levels of government and stakeholder groups. If Canadian policymakers do this, a more resilient and equitable future for all Canadians is possible.