Diving into "A Mandate to Innovate"

A close look at the Council of Canadian Innovators' recent report.

Happy Monday! With the new federal Cabinet set to be announced tomorrow, today seems a perfect time to do a deep dive into the Council of Canadian Innovators’ (CCI) new report, A Mandate to Innovate. Written by their Director of Policy and Research, Laurent Carbonneau, and Policy and Research Analyst Claire Wilson, it sets out their analysis of the state of Canada’s economy, our pain points, and our opportunities before making 35 detailed recommendations to nine different ministers and the Prime Minister.

As you’ll see below, while I like many things, I don’t agree with everything CCI argues in the report. Some recommendations mask the depths of complexity that aren’t addressed, a few issues or frames are missing altogether, and others are touched on when they should be shouted about. My most significant criticism goes beyond just CCI and is directed at business groups more broadly.

That all said, I think this is a welcome contribution to our policy discourse. CCI has presented their thinking, backed it up with data and evidence in plenty of cases, and gone much further in contributing to an ongoing policy conversation than other business groups. Just contrast the depth and breadth of this report to the Business Council of Canada’s Ambition and Action: An urgent plan for Canada, for example.

Last week, I called for more collective sensemaking, saying that “organizations should recognize their obligation to be constructive contributors to this wider conversation to improve public outcomes and resource it appropriately.” By producing and publishing this kind of report, CCI are doing just that.

Meeting the Moment

Let’s start with perhaps my most overarching criticism, which applies not only to this report and CCI but also to many other commentators and business groups more broadly.

The report rightly flags that we are in the midst of the “biggest economic and security crisis in our country’s postwar history” and that Canada “can be a country that plays a critical role in global security and defending democracy.” These are both true, but they are also platitudes that don’t meet the moment, and aren’t followed up by recommendations.

As David Moscrop has argued, “It’s an extraordinary time, and that calls for the courage of plain-spoken truth.”

Let’s speak the truth plainly, then. What does the “biggest economic and security crisis” actually mean? It means we are dealing with a fascist President south of the border. Don Moynihan neatly summarized some of just a handful of actions that Trump’s administration has taken over only the last few days:

I could fill up multiple newsletters by adding detailed actions to that list. Fortunately, I don’t need to as Christina Pagel has been maintaining an excellent/horrifying spreadsheet of actions that fit into different buckets of activities that undermine democracy, the rule of law, and suppress dissent. It’s now up to 337 individual authoritarian actions.

Likewise, regarding Canada’s role “defending democracy,” we must first look a little closer to home. We should heed Andrew Coyne’s arguments just this weekend in the Globe and Mail on the state of our democracy:

Put simply, we do not live in the system we think we do. We have the form of a democracy but not the substance; the rituals but not the reality. Because we preserve the forms and rituals, people find it hard to accept how far the substance has been eaten away. But at some point the facts become unanswerable. Far from a democratic example to the world, our parliamentary system is in a state of advanced disrepair – so advanced it is debatable whether it should still be called a democracy.

We are in a scary and unprecedented time. The cornerstones of Canadian prosperity, externally through our relationship with a reliable and friendly USA and internally through our democratic institutions, are under unprecedented strain.

We need to acknowledge and meet a fascist threat, and we need to recognize and repair our flawed democracy.

It might be argued that these are beyond the scope of what a business group should be engaging in, but they are at the core of what enables our prosperity—and, more importantly for CCI, they are at the core of what enables innovation.

As Daron Acemoglu and James A. Robinson have argued, “Technological innovation makes human societies prosperous, but also involves the replacement of the old with the new, and the destruction of the economic privileges and political power of certain people.” Inclusive institutions are key to enabling that kind of innovation and disruption. Authoritarian, closed institutions and systems don’t allow the privileges and power of the elite to be disrupted.

Innovation matters, and recommendations to improve our innovation policies, programs, and systems are important. However, this must be built on values and strong institutions that lay the groundwork.

Acemoglu and Robinson also have argued that “the fact that inclusive institutions can go into reverse shows that there is no simple cumulative process of institutional improvement.” And as Timothy Snyder has argued, “institutions do not protect themselves.” If we want innovation, not to mention human rights, inclusive growth, and so much more, then we need to protect these institutions from fascist threats and internal erosion.

Business groups are important actors in our system. The government listens to them, and their member companies listen to them and take cues from them, too. We need business groups to recognize their role in strengthening our democracy and protecting our institutions, and be bastions in defence of what matters most. For me, that means they need to move beyond the platitudes and genuinely advocate for and recommend steps that deal with the day's big issues.

Corporate Profits and Innovation

With that more overarching point out of the way, let’s dive into the report’s specifics. It includes some detailed scene setting on the importance of innovation, Canada’s declining economic complexity, our productivity challenges, and the growing importance of the intangible economy. I appreciate this and how it provides an evidence base for what follows.

There is plenty I agree with in this framing. Its assessment of the rising importance of intangibles is important, and its criticisms of Canada’s overemphasis on tax credits to subsidize R&D, for example, are certainly bang on. I also appreciate that the report explicitly notes that “the data-driven economy is a winner-take-most system [and] these winners generate massive economic rents for themselves and for their home economies.” A business group calling out rent-seeking behaviour isn’t a commonplace thing to see.

To back up the point, CCI includes a figure that appears to be using US data. It shows how profits as a share of GDP declined from 1950 to around 1980 but have seen rapid growth since then:

Source: CCI’s A Mandate to Innovate

What the report doesn’t get into is how that is playing out in Canada specifically. Canada has corporate profits that are even higher than those of the US. While US non-financial net income in 2024 was equivalent to around 7.8% of US GDP, in line with the graph above, based on my analysis Canada’s non-financial net income was equivalent to 12.5% of Canadian GDP. Take financial firms into account and corporate profits here were around 18.3% of GDP last year. As Jim Stanford set out in a report for the Centre of the Future of Work, corporate profits in Canada remain at close to record levels and significantly above their pre-pandemic levels.

With such high profits, combined with our well-known problems with a lack of competition, and the democratic backsliding highlighted above, you can see how we get to a place of embedded elites that are resistant to the disruption that comes with innovation. You only have to look at our banks to see how that plays out now, given how slow they are to innovate and adopt technologies and methods used for years in other countries.

I’d love to see CCI tackle that issue head-on, and recognize that a more inclusive and redistributive reform of our taxation system could play a major role in unleashing Canada’s innovation potential.

Recommendations

Moving on to the actual recommendations to ministers. Given that one of my long-standing criticisms of the policy dialogue in Canada is that we don’t get into enough detail, this is a good start. While some recommendations are still on the vaguer side—the call for a “light-touch regulatory framework” for AI masks huge depths of complexity, contested concepts, and power asymmetries, for example—this is still a welcome level of engagement with numerous intersecting issues.

I won’t comment on all the recommendations, but I’ll discuss a few that caught my eye with some rapid thoughts.

Prime Minister

“An innovation-first Cabinet that thinks differently”

I feel this is a missed opportunity to emphasize the importance of genuine diversity. For CCI, thinking differently means having ministers with experience as innovators in the private sector. Yet, if we want better outcomes for Canada, including in innovation, then we need a broader lens on diversity. There is plenty of research out there that shows that more diverse firms are more innovative, such as this work cited by Heather Boushey in her book Unbound:

The most diverse companies in terms of race and ethnicity are 35 percent more likely to see above-average financial returns, while the companies most inclusive in terms of gender are 15 percent more likely to experience above-average returns. Those in the bottom quartile for gender, racial, and ethnic diversity are less likely to achieve above-average financial returns. Innovation thrives on diversity

Private sector experience is certainly valuable. But, more than anything, we need real diversity.

Create “a mission-focused, arms-length agency to lead on helping firms scale and secure freedom to operate”

Great. This is Dan Breznitz’s Canada Innovation Corporation. I certainly agree there is a gap for this kind of organization, though I would add that it also needs to take a place-based lens to its work, something missing from the report.

“Unleash competition in Canada with enhanced and independent competition law enforcement by severing the link between ISED”

I’m pleased to see competition emphasized, and severing the link seems to make sense. What I think is missing is the emphasis on more of the “whole-of-government” competition approach that Elizabeth Wilkins called for in the Roosevelt Institute essay I wrote about on Friday.

Minister of Finance

“Unlock innovation and support entrepreneurs by reforming the tax system”

While I’m not a fan of CCI’s position on the capital gains inclusion rate and feel a broader approach to taxation is warranted, as I discuss above, I echo their call that we need better evaluation metrics for SR&ED. For something that is a massive part of our spending on innovation, it is a mess that leaves almost no one happy (other than the cottage industry of SR&ED consultants who leech off the taxpayer and innovative firms). Having greater transparency and better, more accurate data would be good to see.

Minister of Innovation, Science and Industry

“Focus Canada’s AI efforts on scaling Canadian firms, smart regulation, and AI adoption instead of spreading our efforts too thin”

This recommendation could be three or four more detailed recommendations. I already mentioned the depths hidden behind calls for smart regulation, and the same goes for adoption. I think more attention needs to be paid to skills in firms to support adoption, along with helping companies develop sensible technology strategies with fair and impartial advice.

“Keep Canadians and their data safe by building sovereign compute and cloud capacity”

I appreciate that CCI explicitly points out that “sovereign and domestic compute are not equivalent” - a distinction missing in the Liberal platform, for example. As I covered in the Reading Roundup on Friday, we shouldn’t just give lip service to digital sovereignty. Given that we face a fascist threat from the US, and that US firms play a dominant role in our digital systems, we need to understand the difference between sovereign and domestic.

“Strengthen the connections between publicly-funded research and economic success by tying federal research funding on strong university and college intellectual property management (e.g. express licenses), improving research commercialization practices that promote Canadian prosperity, and modernizing the NRC”

I don’t think I agree with the report’s call to tie research funding to IP management. Don’t get me wrong, I believe there is a significant issue around ownership and utilization of IP that comes out of universities, as folks such as Kyle Briggs have explored in depth. However, I don’t think tying research funding to addressing it is the right lever to pull, especially when the global scientific enterprise is under threat thanks to the actions of the Trump administration.

Moreover, concerns about commercialization need to be nested within a normative understanding of the value of research. Research has social and economic value, even if Canada doesn’t commercialize it. There is likewise a broader value to producing researchers, regardless of what happens to their outputs.

On NRC, while I think the call to provide NRC labs and facilities more organizational autonomy is valuable, I don’t think any should be spun out as independent companies as the report suggests. Instead, we would better look at the highly decentralized, non-profit model of Fraunhofer-Gesellschaft in Germany and its 75 research institutes.

“Enhance support to Statistics Canada”

Yes, we need better, more accurate data. But please tie this at least to improving StatsCan's user-friendliness and data accessibility. It leaves much to be desired right now.

Ministers of Foreign Affairs and International Trade

“Protect Canada’s global security interests and our economic competitiveness by mapping, assessing, and acting to strengthen our position in global value chains” 

Doing more work to understand GVCs would be very beneficial, but only if that analysis is accessible. Our participation in GVCs is rooted in local places and circumstances. For a great example, you need only read Dan Breznitz’s, Scott McKnight’s and Marte Vroom’s working paper on Sudbury and mining innovation. A mapping exercise would be great, but it will have the most impact if mobilized in a way to be useful and informative to provincial and local decision-makers as well as firms on the ground.

President of the Treasury Board

“Unlock more flexible, innovative governance by enshrining standards as statutory instruments in legislation, narrowing the scope of regulations, and expanding the use of regulatory sandboxes across government for emerging technologies”

Yes to sandboxes and “collaborative, iterative learning” regarding emerging technology regulation. This is one part of what we need to set up regulatory systems that are fit for today. But I’d love to see more details on which regulators could benefit from sandboxes and how they should be set up in practice. There has been a wealth of work on sandboxes internationally and plenty of experimentation with them, including in Canada, starting in 2017 with a sandbox launched by the Canadian Security Administrators. What have we learned from them in the 8 years since, and what are best practices?

Final thoughts

I’ve barely scratched the surface of what is in the report, but this post is already far too long. While I quibble that more detail is needed on various recommendations, at 33 pages, this is still a substantial piece of work. I may not agree with all of what CCI advocates for, and may feel that some major pieces are missing, especially regarding the broader moment we’re in, but I am nonetheless pleased that there is enough here to engage with and get my teeth stuck into. We need more of this kind of policy work.