Yet, despite countless warnings, Canadian businesses remain oddly complacent.
“We tend in this county not to look at the true market opportunity of innovation,” Mr. Bloom adds. “If you only see a market of 35 million people, you’re going to see more risk than if you see the market as Europe, the U.S. and Asia. Americans see risk, but also great opportunity.”
It’s no coincidence that many of Canada’s greatest entrepreneurs and innovators have been immigrants. Unlike his American counterpart, the average Canadian business graduate does not dream of becoming the next Sergey Brin, Steve Jobs or, for that matter, Peter Munk.
Mr. Lazaridis and ex-BlackBerry co-CEO Jim Balsillie notwithstanding, how many Canadian entrepreneurs and innovators have truly changed the world, or aspire? By all accounts, not that many. A Conference Board study released last month found that only 10 per cent of Canadian firms (almost all of them small ones) pursue “radical or revolutionary” innovations. Large firms focus at best on “incremental” innovations.
A 2012 OECD study identified what it called the “striking paradox” of Canada’s innovation record. Despite one of the world’s best educated populations, strong institutions, deep economic integration with the world’s technology leader (the United States) and “ample public spending in support of innovation, Canada’s business innovation activity is by any aggregate measure lacklustre.”
The Paris-based organization zeroed in on the difficulty innovation-driven firms here face in obtaining credit, given the forbidding collateral requirements set by banks and the country’s relatively small venture capital sector. It also noted a higher reliance of Canadian firms on government to “motivate” investments in R&D compared with other countries. And it underscored the weak quality of management in Canada vis-à-vis the United States: “One reason for superior U.S. performance is competition and market discipline. Well-run firms are rewarded more quickly with greater market share, while poorly managed firms are forced to shrink and exit,” the study said.
Changing the culture of Canadian business will not be easy. Some argue it may only get harder as the oil sands become the country’s dominant engine of growth. Could Canada revert to its default setting as a resource economy with a bunch of satellite industries focused on servicing the oil sector?
The OECD study noted that “resource-rich” countries like Canada and Norway have weaker innovation records than “resource-poor” counterparts such as Israel, South Korea and Japan. “The presence of resource rents might itself dull the drive to innovate,” the report said, by attracting labour and money to extraction businesses that conduct less research.
Resource wealth need not be destiny, however. The oil sands employs a slew of scientists and engineers working to improve productivity and reduce the sector’s environmental impact. “The cost of production in the oil sands has come way down in the past 20 years because of innovation,” Mr. Bloom adds.
Still, governments could do more to drive innovation in the oil sands by putting a higher price on carbon emissions and setting stricter regulations for restoring land affected by bitumen mining. The payoff would extend beyond the environmental benefits to include the commercialization of new technologies.
What more could Ottawa and the provinces do to improve Canada’s innovation performance?
That question has led to the felling of entire forests over the years, most recently with the 148-page report tabled by a federally-appointed panel led by Open Text Corp. executive chairman Tom Jenkins.
The federal and provincial governments have long sought to spur research spending with generous tax incentives. (R&D tax credits cost Ottawa $3.5-billion in 2011 alone.)
But while the incentives have generated plenty of work for accountants, they have yielded only mediocre innovation results.
Based in part on the panel’s recommendations, Ottawa is scaling back tax incentives starting next year, particularly for large companies, and putting more money into direct research grants and vouchers. The latter will enable startup firms to pay universities to conduct research on their behalf and get management advice from business experts. Another major shift is the rewriting of the National Research Council’s mandate, directing it to conduct applied research commissioned by businesses.
Big business and academics have roundly criticized the changes. The former argue they will be penalized under the new tax rules, while the latter fear that “pure” research could suffer. But if creating the next BlackBerry (and the next one after that) is the end goal of Canada’s innovation policy, Ottawa appears to be on the right track.
As the Jenkins panel concluded, “the federal government needs to focus its innovation support more sharply on the strategic objective of growing innovative firms into larger enterprises.”
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