Imagine for a moment that Canada were a company – Canada Inc. It confronts an innovation landscape featuring seemingly boundless opportunity and is blessed with the knowledge assets to capture value in this space. Imagine that you are the CEO. Would you be cautiously seeking to pay down the company’s existing debt or would you be leveraging up and investing? Imagine that you are a shareholder of this company – a passport-carrying citizen of Canada Inc. – would you support a deleveraging strategy – notwithstanding that Canada is the least leveraged country among its peers? Or would you vote for a growth strategy, based on capitalizing on Canada’s capabilities?
I’m guessing that, confronted with this choice, most Canadians would say let’s go for it, let’s invest. And they would be right. Canada actually can prosper in the innovation space that is generated by the technological revolution, also known as “Industry 4.0," “the data-driven economy" or “the new industrial revolution."
But Canada is deleveraging. Canada’s net general government debt as a share of its GDP (which can be thought of as a measure of our ability to afford this net debt) is under 30 per cent and falling. Britain is in the 70-per-cent range and consolidating, while the United States is in the 80-per-cent range and rising over the forecast period to 2024 (all figures from the International Monetary Fund).
What if Canada simply held its net debt-to-GDP ratio constant at the very low 2018 figure of 27.9 per cent? How much additional borrowing would this allow? The answer, based on the IMF data, is US$110-billion – in round figures about $150-billion at today’s exchange rate – over the half-decade to 2024.
This capital, invested in priming Canada’s technology generation pump at a time of transformative technological change, would give Canada a level of investment capability approaching that of the major data-driven companies. To put this in perspective, Uber, in its “failed” IPO, raised $40-billion (Canadian) to build on. And that is just one company. In one sector.
Could the government actually invest this amount of money wisely? We really don’t need to worry. The Canadian technology sector punches above its weight in generating startups with viable technology. Where we fail is in scaling up – that is, in growing promising startups with valuations of more than $1-billion – the “unicorns” of the technology world. Mobilizing $150-billion to acquire technology assets generated by Canada’s innovation community would mean throwing serious money at the single most glaring weakness in Canada’s innovation system – limited venture capital.
And here’s the real kicker. Borrowing to invest in productive assets is profoundly different from borrowing to support current consumption. That $150-billion borrowed and invested in technology assets would likely pay for itself and then some. There would likely be no increase in Canada’s net debt – there could actually be a decrease if some of those technology assets acquired pan out sufficiently well.
Normally, it is sound policy for governments to leave industrial investment to private capital. But these are not normal times. We are not in a technological “steady state," where tomorrow’s technology and competitive environment is much the same as yesterday’s. In our age, the acceleration of technological change has elevated risk and made returns less certain. Moreover, the nature of investment today has powerful public-good characteristics. In our age, it is both penny foolish and pound foolish for the public sector not to invest.
So here’s the pitch to the government of Canada: Float a $150-billion Canada Inc. bond to invest in this country’s technology future. Canada will benefit substantially, especially if we make the necessary policy course corrections to capture the benefits of our technology support as opposed to having these benefits leak out to global players. If we have any confidence in our country’s ability to succeed in the brave new world of the knowledge-based and data-driven economy, we should have confidence that Canada’s stock would rise and that we as passport-carrying citizens would be better off.
One last consideration to stiffen spines: The last time Canada got cold feet on a serious technology support decision, we let Nortel Networks fail. Talk about ill-timed: That was on the eve of the rollout of 5G networks, which are what the U.S.-China trade war is mainly all about. Canada, with a bailed-out Nortel, would have been at the heart of the solution to the security concerns voiced about Huawei Technologies Co. Ltd., both ours and our trading partners, and not caught between a rock and a hard case. Want to imagine alternative futures? Imagine that.
If we are to have a prosperous future, we must collectively invest in that future. And that means investing in technology, doing so at scale, and doing it now.
Dan Ciuriak is senior fellow with the Centre for International Governance Innovation (CIGI) where he writes on the interface between trade and the digital transformation.