Tiff Macklem is dean of the Rotman School of Management and former senior deputy governor of the Bank of Canada. Ajay Agrawal is the Peter Munk professor of entrepreneurship and professor of strategic management at the Rotman School and founding academic director of its Creative Destruction Lab. Scott Bonham is co-founder of GGV Capital and co-chair of the C100, a non-profit organization of Canadian tech entrepreneurs, executives and investors in Silicon Valley.
Productivity growth is essential for improving a country's standard of living. Unfortunately, Canada's productivity growth chronically underperforms. Following a pickup in the late 1990s, we have languished for 15 years. Rising commodity prices temporarily made us wealthier and raised our standard of living, but this is not a sustainable path to wealth creation, as the recent downturn made clear.
What is the root of Canada's productivity problem?
The problem isn't education. We produce highly talented engineers, scientists and business people. This is evidenced by the number of our graduates hired by firms recruiting in the world's most competitive talent markets, such as Google and Facebook.
The problem isn't innovative ideas. We generate plenty. For example, the Conference Board of Canada reports that we outperform many Organization for Economic Co-operation and Development countries in terms of the number of peer-reviewed articles produced per capita in natural science and engineering.
The crux of our problem is commercialization and scale. Simply put, we must convert more of our ideas into products and services that generate sales, then move quickly to achieve global scale. In an increasingly winner-takes-all world economy, there is little middle ground. Companies are either global leaders or marginalized.
How should we respond? We must focus. Don't companies automatically gravitate to an optimal level of focus in response to market forces? From an individual company perspective, perhaps. From a national perspective, not likely.
That's not to say that we don't believe in markets: We fully appreciate their power to efficiently allocate resources to their most productive use – under the right conditions. However, markets fail when the wedge between private and social value is too large.
That is precisely the case for new industry clusters. An individual company's investment decisions focus on private returns, not on the value to the country from creating the conditions that attract talent, capital and companies. Thus, government plays a critical role in this context. For example, it is difficult to overstate the role the U.S. government played as both financier and customer in the early days of the semiconductor industry that created Silicon Valley.
Today, Canada has a golden opportunity to develop an industrial cluster and compete in a vast array of markets due to an innovation lead in artificial intelligence.
AI is a broad term for computer systems that perform tasks that normally require human intelligence, such as visual perception, translation and decision making. Rapid progress in AI recently vaulted the self-driving car to a near reality, and this is just the tip of the iceberg. The applications are almost limitless: What machinery did for manual tasks, AI will do for cognitive tasks. For example, the clerk at Blockbuster who used to recommend movies for you was recently replaced by the AI of Netflix that learns your preferences.
Thanks to superstar talent at our universities, and the foresight of funding agencies such as the Canadian Institute for Advanced Research, Canada is an AI leader, particularly in promising subfields such as deep learning and reinforcement learning. At the University of Toronto's Rotman School of Management, we are helping inventors convert ideas into products and services. Last summer, our Creative Destruction Lab launched a new program where 25 AI-based ventures work closely with some of Canada's most experienced entrepreneurs and our faculty and MBA students. The objective is to increase the ventures' probability of success and maximize their equity value.
Canada stands at a crossroads: We can either move quickly to secure a major presence in the global market for AI-enabled products or we can let others reap the productivity benefits from ideas spawned here.
We're not pursuing AI because it is a "sure thing." However, what is surely true is that if we as a nation are not willing to take the risk of investing in select areas where Canada has a reasonable chance of competing with the best – and winning – then we are doomed to continue our chronic productivity underperformance.
On Tuesday, Dec. 15, the Rotman School hosts Machine Learning and the Market for Intelligence, a conference bringing together pioneering computer scientists, captains of industry and leading investors to address the vast business opportunities presented by AI.