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Jeffrey Simpson (Brigitte Bouvier For The Globe and Mail)

Jeffrey Simpson

(Brigitte Bouvier For The Globe and Mail)

JEFFREY SIMPSON

Canadian business, heal thyself Add to ...

The demise of BlackBerry Ltd. offers a sickening story of corporate decline.

BlackBerry, previously Research In Motion Ltd., seemed to have done everything right: serious research and development, international perspective, links to nearby universities, very smart people. The company was the poster child for what Canadian experts believed is required to succeed in a global economy.

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Now it’s a shell of its former self – a Nortel collapse redux, perhaps. And yet, the lessons BlackBerry/RIM once followed still seem urgent for the Canadian economy: research, innovation, productivity improvements, global perspective beyond the United States.

On Oct. 1, the Council of Canadian Academies summarized seven years of studies into Canada’s capacities in science, technology, innovation and productivity, releasing a report, Paradox Lost (the title must have come from the fertile brain of the brilliant Peter Nicholson, a member of the advisory group), that laid it on the line.

The government has been doing its part, especially in funding university research, the council concluded – although more money would always be welcome. What’s lacking is an “aggressively innovative business sector.”

Business groups, whether representing big business or small, are quick to highlight deficiencies in this or that government policy. The message from the council, however, is a variation on the old line about physicians: Business, heal thyself.

The council offered an old lament: that Canadian companies rely excessively on U.S. innovation. They are content either to play an upstream role (extracting resources) or as subsidiaries of foreign companies. Too many Canadian businesses settle, the council reported, for a “profitable low-innovation equilibrium” (a fancy way of saying second-best) that conditions Canadian business’s behaviour and ambitions.

Canada has good science and technology capabilities in many fields, according to previous reports. However, linking research to commercial innovation remains a problem.

The biggest problem – a problem that will continue to plague Canada as its economic growth slows and its population ages – is the poor research and development effort by business, an effort that made BlackBerry/RIM shine in its halcyon days.

Canadian business trails U.S. business in research and development. It is also well below average among OECD member countries. Critics might sniff that Canada’s population is only 35 million, so what do you expect? And yet Sweden and Switzerland do much more R&D despite having much smaller populations than Canada.

The Council of Canadian Academies says Canada’s R&D lag, with its consequential poor record of innovation, is not due to foreign ownership per se. Rather, it is that R&D-intensive industries account for a small share of the Canadian economy.

Put another way, Canada does not have a “supply side” problem (too few researchers or not enough public money) but a “demand side” problem: too little interest by business in innovation.

This problem of lagging innovation and inadequate R&D coincides with four major trends that will slow Canadian growth. First, the United States is in relative decline. Second, the growing global appetite for commodities means environmental challenges and volatile price swings. Third, scientific revolutions in fields such as genomics and nanotechnology will shape business and social life, but Canadian firms are behind the curve in both areas. Fourth, our aging population will be a drag on economic growth (and government revenues).

Aging figured in another recent report about the future, this one from the Parliamentary Budget Office, which predicted that overall growth in the coming decades will be about 1 per cent lower each year than over the past three decades.

An aging population reduces total hours worked in the economy and “raises spending pressure on government programs whose benefits go mainly to those in older age groups, such as health care, elderly benefits and public pension programs,” the report notes.

Ottawa’s finances are fine over the long haul, according to the PBO, but provincial budgets are “unsustainable,” largely but not entirely because of growing health-care costs. The longer provinces wait to bring their budgets under long-term control (all except Saskatchewan are in deficit), the greater and more painful the restrictions or tax increases will be later.

One way to ease this pain would be stronger economic growth. But that would depend on better performance from Canadian business in R&D and innovation, as the Council of Canadian Academies has just pinpointed.

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