Categories: Paul Wells

So many ideas, but no one using them

The reports say Canada isn’t innovating. That’s hurting our productivity and prosperity—and creating fat and lazy businesses.

by Paul Wells on Friday, May 15, 2009 12:20pm - 42 Comments

So many ideas, but no one using themIf he ever gets done saving GM and Chrysler, Tony Clement will have some reading to catch up on. Clement is Canada’s industry minister. Don’t worry if that’s news to you. It’s not as though he’s provided much evidence of his existence. But his desk is lately piling high with reports commissioned by his predecessors.

In May 2007 Maxime Bernier asked the Council of Canadian Academies (CCA) why Canadian business isn’t as good as the private sector in other countries in coming up with new ideas and implementing them. Five months later, Bernier’s replacement, Jim Prentice, set up a Science, Technology and Innovation Council (STIC) to advise him on, well, basically the same topic.

Both reports have landed on Clement’s desk within days of each other. If they gather dust because the minister in charge appears to be stuck in witness protection, then all the university presidents, CEOs and public servants who drafted them will have wasted their time. More important, Canada will be wasting some of its potential, because the two reports say the same thing: Canada isn’t innovating; it’s hurting our productivity; so we’re not creating the prosperity that could improve all of our lives.

This matters. The best guess we have is that after the recession there’ll be less potential for total global growth than there was from 2002 to 2007. So the next decade won’t be as easy as the last one. Coasting on easy prosperity won’t be an option.

Canada’s economic growth has lagged behind growth in the United States more or less forever, which means we have less money to keep in our pockets or use for social programs. The difference is productivity: 100 Canadians working 100 hours create less wealth than 100 Americans working 100 hours. That’s because U.S. business—and business in plenty of other countries as well—is better at innovating, at creating new ideas, methods and equipment that wring more value from workers’ time.

Now it’s not as though successive governments haven’t been worried about this. New ideas? By God, we’ll get you some new ideas. That’s why the Chrétien government spent money hand over fist after 1997 on university labs and research. Paul Martin and then Stephen Harper have enriched those programs, though lately with declining enthusiasm. The newspapers have started to cover the shrieks of indignation from researchers who doubt Harper’s affection for universities’ research mission.

But here’s the thing. Our university labs aren’t what’s broken.

Both the CCA report and the STIC report show what everyone who follows these questions knows: Canada ranks second in the OECD (behind Sweden) for government spending on university research. It can’t do much better. Nor is it second-rate research: our scientists are cited frequently in papers by their colleagues worldwide, a handy measure of respect for their work.

I could go on. We make ideas just fine, thank you. We just don’t use them.

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  • http://www.jackmitchell.ca Jack Mitchell

    I’m genuinely not qualified to comment on this issue, but perhaps innovation is driven from the bottom, by start-ups? So if our investment climate is not favourable to start-ups then established players suffer too, over the long term. Therefore we should improve the investment climate, which (correct me if I’m wrong) would mean getting our banks to be a little less paranoid about supporting new enterprise. I don’t know how you do that, of course, but there must be some regulatory model that would encourage it.

  • http://myblahg.com Robert McClelland

    I think a lot of it has to do with our government’s attitude toward how businesses operate compared to that taken by other governments. In the US for example, politicians aren’t afraid to take companies out behind the woodshed and switch their sorry ass if they don’t live up to their part of the economic bargain by investing in R&D. In Canada however, our government is more than willing to hand over corporate tax cuts with no strings attached. None of our politicians have been willing to tell them in no uncertain terms that those corporate tax cuts come with a price; increased investment in R&D.

  • Critical Reasoning

    Summary of CCA report (full version will be available in June):

    http://www.scienceadvice.ca/documents/(2009-04-29)%20Report%20in%20Focus%20-%20Innovation.pdf

  • Critical Reasoning
  • Neil from Calgary

    If we combine Canada’s risk-averse society (that includes businesses), with an uncompetitive marketplace dominated by oligopolies that don’t have to compete with international companies, because of foreign ownership and expansion restrictions e.g. telecoms, you get the Canada that PW has described.

    America signed multiple free trade deals during the Bush years.
    The European Union has fewer internal trade barriers than Canada has with its provinces.

    Competition forces companies to innovate, and, more importantly it lowers prices and offers new choices for comsumers. Until we force our companies to compete with foreign competition, our “national champions” will have no incentive to improve their operations, and good ideas will continue to go to waste. Let’s abandon this economic nationalism and our unfounded fears of “hollowing out” our corporate sector. Consumers run societies, people like you and me, not businesses.

    • madeyoulook

      Amen, Neil. Encourage competition, reduce the punishment of capital & profit, and stand back lest private sector innovation run you over.

      • http://myblahg.com Robert McClelland

        We’ve been doing just that and private sector innovation has just rolled over.

        • Sisyphus

          myl, It might be useful for you to read the reports ( and others ) before you do the omne padme hum of the well known brotherhood.

    • http://intensedebate.com/people/Thwim Thwim

      You hear that thing about Canada having a lot of trade barriers between provinces quite a bit. You might try looking it up. It's not true.

  • http://worthwhile.typepad.com Stephen Gordon

    Very nice column. You might have quoted Dan Trefler’s line from last year’s Innis Lecture at the meetings of the Canadian Economics Association last year in Vancouver: “Canada’s managers are under-achievers”.

    • Paul Wells

      Oh, Stephen, Stephen, Stephen. Over here on this other thread, there’s a guy named John who says you’re stuck in a facile analysis because you’re not conversant. Well, actually he said it about me, but…

      http://www2.macleans.ca/2009/05/15/hey-look-a-richer-smarter-canada/#commenting

      • http://worthwhile.typepad.com Stephen Gordon

        Just to follow up, because I can’t find an ungated version of Dan Trefler’s talk.

        One possible explanation might take the form of a cultural antipathy to innovation: Canadians don’t innovate because it’s considered to be bad manners or some such. But it’s hard to reconcile that theory with the available evidence: opinion polling data suggest that attitudes towards entrepreneurship in Canada and the US are pretty much the same.

        But there was one question where there was a significant difference. When asked what sort of education was required to do well in business, Canadian managers were far more likely than their US counterparts to say that a university degree wasn’t necessary. Of course, that might be because 70% of Canadian managers don’t have a degree, while that’s the case for only 50% of US managers.

        Hence the “underachievers” line.

    • Canuckistanian

      isn’t that why people go into business?

  • Mike T.

    Is it not more likely that the research being done is still stuff that isn’t ready to turn a profit when adapted by the private sector? After all, who doesn’t like an efficiency?

    And what are the economics of scale on this issue, and how do we define an innovation? Mightn’t there be a value to letting larger, richer countries invest their $ in innovation and adapting their successes?

    • Canuckistanian

      good idea. they can have all the good jobs that come from the knowledge economy; we’ll just send them tar sands and raw logs in exchange for their expertise.

      • Conan the Agrarian

        Well, yeah. Exactly.

    • Canuckistanian

      ps. i think harrold innis and george grant just rolled over in their graves.

  • Peter Jay

    Bits and bites. Some of it contradictory.

    -We are still hewers of wood and drawers of water. It’s winning the lottery to be in Canada. 30 odd million on a land fat with riches. When you’re fat, you ain’t hungry. We’re just one big social program living off the land.

    -A lot gets explained by tax rules. American business can write down new assets much faster. So you invest in new tech and you don’t pay near as much tax after you do as a Canadian business.

    -Government control of the economy. I work for a software company. You would not believe the amount of technology that the US applies to just the insurance part of the US health system. Governments are slow, cautious spenders.

    -How much of those vaunted productivity gains were coming from the financial services sector? It’s amazing how much money they were generating for time spent but how real was it?

    -How much of that University research spending is in BS studies? Much of this research is likely just useless dreck.

    • Canuckistanian

      “-We are still hewers of wood and drawers of water. It’s winning the lottery to be in Canada. 30 odd million on a land fat with riches. When you’re fat, you ain’t hungry. We’re just one big social program living off the land.”

      bonus: we have provincial control of resources. that way, during a commodities boom we can have energy rich jurisdictions making us all poorer in the long run due to horrid policy-making; by driving up our currency and making our manufacturing industries uncompetitive. natural resource curse? pass the dutch (disease). too bad we aren’t norwegians (i.e. not stupid).

  • Meany

    I agree with Jack Mitchell, above. Companies must be FORCED to innovate, they must be shaken out of their slumber, and the only way that happens is through competition.

    However, the Canadian market does not tend to produce many new entrants or competitors, mainly because of how our (apparently so wonderful) banking system is set up. The same things that saved us from bailing out our banks (extremely conservative lending standards) choke off access to capital to budding entrepreneurs.

    My knowledge is specifically of the technology sector, and let me assure you, it’s 100 times easier to get access to capital in markets like California than it is in Ontario. THAT in the long term will hurt our competitiveness.

    • Conan the Agrarian

      This is definitely part of the problem. Good luck getting a startup funded if you’re in Canada – you’ll need it. The banks won’t give you a penny, and the VCs are far more cautious and require a bigger chunk of equity for less money than VCs in California. So it’s not rare for Canadian entrepreneurs to move to California, where there is real support for them – not mere government programs, mind you, but *real* support in the form of a critical mass of dynamic venture culture.

      And as Mike T. points out, economies of scale and distance to markets do matter. There is likely an unspoken assumption in Canada’s business world that there is little point in trying to innovate, because Canada is so obviously not the center of the world: except for Toronto, our small and far-apart cities are distant from most of the big technology markets in the USA, Asia and Europe, and there is no Silicon Valley here. So it seems more realistic to wait for the innovations to come out of California and buy already commercialized technologies once they’re on the market.

      I don’t think this will ever change, frankly. The only way I think we could break out of this paradigm would be for government to take the lead by declaring a national mission to rebuild our infrastructure, to build a clean-energy economy in record time, and manage mega-contracts on a competitive-bid basis; that would cause huge amounts of money to flow, and probably no small amount of innovation. But no Canadian government will ever do that. Instead, we’ll wait for the USA to get on with greening its energy supply, and then we’ll hobble after them like the complacent little brothers we’ve always been.

  • Mulletaur

    “Is it because we’re a branch-plant economy?” No, it’s because our business leaders have a branch plant mentality. It goes along with our culture of mediocrity in Canada. It’s the mentality of ‘good enough’ versus the mentality of ‘it’s never good enough, damn it !’ that business leaders in other countries seem to have.

    “The overwhelming conclusion is that it’s too easy for business to sort-of succeed in Canada. We’ve got a big, isolated, rich country. It’s too easy to just lob exports a few miles over the border into the United States.” I think what you say is true. However, to believe the continentalists and free traders, we should be at the cutting edge of everything industrial and technological due to the fact that we have an open and free market with the Yankees. Free trade was supposed to sharpen our competitive edge, not blunt it. Funny how that works.

  • http://www.fultonengineeredspecialties.com waltthebarfly

    One issue that gets very little mention in the media is the ability of small to micro businesses to particpate in the R&D programs. Most people who don’t live in this business sector on a daily basis just don’t understand that small businesses just don’t have the resources to deal with the processes to fully take advantage of available programs. Too often I hear “Just hire a consultant to look after this for you”. If you have gone through the process of claiming R&D funding, and I have, then you understand that this answer is not as simple as it sounds. The consultants only package up the information that we have to generate, you still have to have the documentation with supporting back-up. With a company of 25 employees I just don’t have anyone available to dedicate to this process. I strongly believe that there is a huge number of businesses like mine. Furthermore the company must spend the money first and then apply for the credit. This implies that the company has the funds available to invest in R&D and the proper documentation of their projects. Such funds come from ongoing profitablilty which has been attacked by various levels of government for years, and this attach is not slowing down let allone stopping. Small business in Ontario has been under attack for years by tighteneing regulations in Health & Safety through the WSIB, Employee Regulations through the Department of Labour, EI, and various inter-provincial trade barriers.
    Simply put, there is nothing left at the end of the day to invest in R&D.
    This is the view from the shop floor, in a Province where manufacturing has been tagged for extinction.
    Investment in R&D……………….sweet dreams are made of this.

    • Stewart Smith

      Wal has it exactly right… well almost. The Canadian bureaucracy is absolutely convinced that our R&D tax credits are the envy of the world. The evidence has been clear for decades that they are an abysmal failure. Small outfits like Wals lack the resources to tap into them. Startups have no profits yet… tax credits are useless. For larger outfits, the ones that actual use the tax credits there is a more subtle issue.

      Some years ago, we had some university IP, we wanted to transfer to a southern Ontario manufacturer of satellite components. The R&D manager was enthusiastic about the technology and wanted to help fund the additional research necessary for the IP to have value to the company. Senior management however saw this as a huge distraction. Most telling was that the senior management saw the R&D tax credits as income earned by their tax accountants. So when they look at the business case for a new innovation, they routinely over account for their expenses.

      The US, Europe, Japan all do things differently. The EU’s framework program, DARPA in the US etc all co-fund research with companies. i.e. instead of providing tax credits, they give cash to companies sometimes with a provision in the contract that some of that research must flow through universities. To finish the story above, with a sort of happy ending, two years later the company got a subcontract on a DARPA project and used that funding to successfully implement the IP. It dramatically showed that US approach to driving innovation is vastly superior to the Canadian.

  • Jean Proulx

    This is a fascinating column and helps me view the issue from a fresh perspective.

    It reminds me of something I’ve noticed myself in my academic career. I study political science. There are all kinds of very interesting new theories that emerge on a weekly basis that can help us better understand politics and public policy. Once they are published though they tend to be read by a few other academics and then are mostly forgotten. The overwhelming obsession is always to come up with NEW ideas, but very little energy is devoted to thinking about how to operationalize these ideas so that they might actually…you know…produce more intelligent public policy.

    • Conan the Agrarian

      Imagine if political science academics got rewards of status and recognition when their ideas actually get used and implemented in governance, rather than simply by publishing papers and getting citations in peers’ papers. Sadly, as you point out, the reward system for academics has very little to do with ideas being implemented in the real world. The academic game is about peer status and junketeering to conferences in pretty places. Enjoy your next conference in Tuscany, Whistler or Thailand.

  • http://bestpaperairplanes.com Russell Johnston

    Speaking as someone still just sitting on a lot of patentable ideas; I’ve come to the conclusion that it will take a generation or two after free trade to make the cultural difference. People don’t remember just how incredibly stifling tariffs were in Canada – forcing our manufacturers to price themselves out of most of the market for almost any good. That’s why branch plants happened, and those tariffs (plus the manufacturers tax) killed companies I tried to start when young, before they could even form. I believe this wasn’t accidental, the fix was in, politically. To refer to an old tale, the chain is off the elephant, but the chain was on its leg so long, that the elephant isn’t even going to make a try for freedom for a very long time.

    • sf

      Good point.

  • Jim

    There are plenty of great ideas created in academic research and there’s plenty of funding devices created by provincial and federal governments to promote their translation into industry (take a look at the Ontario Research Fund). The problem is that industry isn’t interested unless they get the money in their pockets. Nevermind that they will get a leg up in benefitting from the new technologies and processes they are asked to help develop. They are short-sighted and apt to focus on the immediate bottom-line – forget the future. As a consequence, most Canadian academic IP is licensed to US companies. The lack of Canadian venture funds, a general lack of enthusiasm for grown-at-home discoveries and a short-term lack of vision will perpetuate this situation.

    In the meantime, the feds are trying to accelerate commercialization by picking their winners. This will simply poison the well. Scientists haven’t much idea which of their discoveries will take off. Why should governments be any wiser? Leave the brainiacs to come up with crazy ideas and (eventually) these investments will pay off. It’s the private sector that needs a wake-up call.

  • Chuck VS Macleans

    Great read, I really like this..

    “This is usually the place in the conversation where somebody complains that it’s too expensive to do business in Canada”

    That is what I was thinking when I got to that point in the article. Thanks for pointing out that I was wrong. I don’t really no much on this issue, so thanks for covering this issue. Really good read..

  • sf

    This is a great article, and I agree with the conclusion. The arguments are convincing.

    Governments know all about keeping Canadian business fat and lazy. They have been inept, or afraid, when it comes to making our businesses so hungry they must finally live by their wits. That’s a serious challenge for a serious government, if we have one.

    Necessity is the mother of invention. Failure breeds innovation. Sometimes the only solution is “tough love”. Etc, etc.

  • sf

    I think that our cell phone companies are a good case-in-point. It’s almost like they purposely avoid innovating. They reject innovations coming from elsewhere (eg the iphone took forever to arrive). Rather than create new services they try to charge more than anywhere else for the existing ones (eg charge customers for receiving text messages!). They are never the first to try something new.

    • Canuckistanian

      but don’t you take pride in knowing that by overpaying for telecommunications you are making canadian billionaires, our national champions (at fleecing us rubes)?

  • Andrew

    Excellent Column. I see three real causes for the problem you’ve outlined.

    1) We have government intervention, taxes and a regulatory framework that is very hard on small businesses, and chokes medium size companies that might potentially go big.

    2) We have a domestic market where a few big monopolists (Bombardier, BCE, Rogers, etc.) run the show. They don’t have to worry as much about being competitive because they operate hand in hand with the government (often the people in the boardrooms and the senior civil service in Ottawa are either the same people or completely interchangeable) and can count on generous subsidies, untendered contracts, and a regulatory framework that protects them from foreign and domestic competition. Unlike the big European and Japanese corporatists, they tend to be more concerned with keeping a stranglehold on the domestic market then competing abroad, making themselves into symbols of national pride at home etc.

    3) Flowing from all this, though perhaps more important, is the fact that we essentially lack a culture of creativity and entreprise, partly because Canada has always had the experience of being a branch plant economy and is still there psychologically, and partly because we don’t do very much to instill those kinds of values early on. You spend a lot of time talking about the benefits of investing in University Research and Post-Secondary Education. But despite all the real benefits, that system can also be enormously limiting. In this country we produce hordes of B.A.’s who get out of university with no clear idea of what to do with their lives, and destined for the kinds of low level office jobs they probably could have started right after getting out of high school. We also produce business and law graduates who get out around age 26 or 28 and don’t find steady jobs until after 30. These people are trained to think like cautious bureaucrats, moving up the corporate hierarchy rather than starting things for themselves. And the trouble with state financed university research is that it tends to be run by people who don’t think very much about how it can commercialized.

    I think the only “solution” would be an utterly ruthless, single minded drive to abolish the system of subsidies, Regional Development Agencies, tax loopholes and regulations that we have in place now. The savings would be used to fund general cuts to the corporate tax rate and massive tax incentives for domestic investment by individuals and businesses. I would also look at shifting the empasis for R&D to one where instead of just endlessly shelling out cash to the universities you would provide tax credits and subsidies for investments in research by businesses, possibly with some requirement that they demonstrate the ability to actually commercialize the results. I doubt anyone in Ottawa now would have the courage to do any of this, except for maybe the last suggestion, which they would almost certainly find a way to turn into a regional pork barrel program.

  • Canuckistanian

    i think we should just give all our tax dollars for R&D to Laziridis & Balsillie. they truly are aberrations in our stultifying business community.

  • http://www.fultonengineeredspecialties.com waltthebarfly

    There are many ways to analyze this issue and its too easy to actually over-analyze. Academics and economists get involved to try and understand how corporations will react to changes in legislation, but their views are through the glasses of theorists, not realists.
    Ask the businesses who are at street level and respect their street smarts. To have a successful R&D program governments must, after proper consultations, put the programs in place and then get out of the way.
    If the programs are well structured then economics will decide the fate of them by seeing if business is using them or not. You can’t legislate or force business to inovate. If it makes business sense then businesses will participate, end of story.
    The current programs don’t work for our businesses so they are not used.
    It can’t get simpler than that, can it?

  • David Hume

    My thought on this is that we have gone overboard in terms of our focus on R&D and not done enough to invest in training people who are capable of developing new products and services. These people, by the way, are not MBAs. They’ll help you take the product and service to market, and make sure the company behind the product and service runs. Instead, I think we need to ask ourselves about the design capacity in this country–where is Canada’s world leading industrial design school?

    Countries like the UK, Swedend, Denmark and Finland have for years been investing in design with some impressive results. Canada’s insistence on becoming expert at process (R&D, lean manufacturing etc.) instead of expert on substance (valuing new products) is a big, big weakness.

    The path to growth is creativity. We’ve put a lot into the fundamentals of new ideas. Now we need to invest in people who specialize in finding the products and services that make those ideas into real things that real people want.

    • Paul Wells

      David Hume, if you don’t know this guy, you should. He and I had the most remarkable chat on Friday morning.

      http://www.acad.ab.ca/president.html

      • David Hume

        Thanks Paul. I’d love to see more discussion of the role of our colleges of art and design in fostering economic growth. It looks like ACAD is doing some fascinating things. Be really keen to know what you and Mr. Carlson talked about.

        And by the by–this creativity stuff is not just essential in the private sector. We need a new generation of public servants who also value, study and model creativity in their work. We need some game changing innovations from our governments if we’re going to get out of all these messes we seem to have found ourselves in lately.

        Thanks for the conversation!

  • Hussam Al-Hertani

    The simple reason why no one/business is trying to implement any new ideas and technologies in Canada is simple. Even with all the tax breaks that the government provides startups and new tech companies, Its just too darn expensive to operate a profitable business in Canada. And even those companies that do operate a business at a profit can increase their profit margins significantly by moving elsewhere. The vast majority of companies..especially tech companies have been for the past decade moving more of their operations overseas to India and China for a reason. Its a lot cheaper to hire everything their from general laborers to engineers and doctors…they’re just as qualified but demand a third to a tenth the salary of an employee in Canada with the same qualifications. Not to mention the cost of land, food, little to no regulations including lax environmental regulations and workers rights…….no unions……..e.t.c. e.t.c. e.t.c. Sadly there’s little to nothing that the government or Academia can do to remedy this situation.

  • Ed Levin

    I’m scientist with 30 years in research in radio and electronics, 12 patents (2 in Canada and US) and more then 50 scientific articles immigrated to Canada 10 years ago. Applied for a job as scientist more than 500 times – no results, still working as a technician. This isn’t a rare example, in condo I live we have: superintendant -PhD in nuclear phisics, reliefsuper-PhD in electronics, manager-PhD in archeology, my neigbour track driver – PhD in mechanical engineering and so on. Nobody in Canada is interested in high level qualified scientist from other countries. In a contrary – I lived in Israel for 6 month before and got 6 job proposals plus scholarship for scientists. I can give you a lot of examples how well qualified professionals being ignored in Canada.
    And furthermore – how to be innovative here – I’m waiting for replay for a patent application from US patent office mostly 3-4 months, in Canada-more than a year. I got five invitations from Us companies to develop my patents, nothing-from Canada! Now we are on the 14 place in R&D rate, where we’ll be in couple of years?

  • Will

    Hey, don't be unfair to Tony Clement. The PMO did use him for something: they had him stand in front of that 50 year old nuclear reactor to prove that it's safe!

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