Canada's 'innovation economy' has been over-hyped and needs a reality check - Canadanewsmedia
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Canada's 'innovation economy' has been over-hyped and needs a reality check

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Neil Desai and Graeme Moffat are executives with Canadian technology scale-ups and Fellows at the Munk School of Global Affairs and Public Policy at the University of Toronto.

There has been a steady drumbeat of headlines praising Canada’s innovation economy of late, including our academic contributions in the area of artificial intelligence, federal “superclusters” that will foster collaboration between large multinationals, local startups and postsecondary institutions, and strategies to increase access to venture capital.

If you look past the feel-good headlines, the analysis of Canada’s innovation activities is misguided at its best. It lacks the precise goal orientation necessary to deliver meaningful and sustainable economic growth relative to the significant public expenditures aimed at transforming our economy. At its worst, the current discourse entrenches a stranglehold on Canada’s innovation inputs by universities, regional innovation centres and foreign tech giants.

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A case in point is a recent Globe and Mail article titled, “Cutting out the middle-man not always best for startups.” It suggests that Canadian startups should partner with other companies and act as a “middle man” rather than trying to reinvent the wheel. The piece cites Jay Shah, the head of the University of Waterloo tech accelerator Velocity, who infers that taking on incumbents is difficult and likely to make a startup some enemies.

The reality in the knowledge-driven global economy is that the ownership of intellectual property (IP) is paramount and a precondition to commercialization. Those who generate, own and commercialize valuable ideas have the greatest ability to create wealth. The rest – those companies and countries without deep IP stocks – will fight over table scraps.

The business strategies that allowed U.S. tech companies such as Facebook, and Chinese champions such as Huawei, to become global giants resemble colonial economics: concerted efforts to own every valuable idea and extract rents on nearly insurmountable advantages. These include monopolies on information, talent, data flows and the sidelining of smaller competitors.

This new reality should not surprise Mr. Shah. His own early-stage company, BufferBox, which aimed to create efficiencies in parcel delivery, was acquired by Google along with a number of others taking on the same challenge. His company’s technology was eventually mothballed. Google likely didn’t think twice about the cost of acquiring the Canadian-created technology. Their goal wasn’t to grow Canadian jobs and prosperity, but to pre-empt competitors.

Acquisitions of early-stage Canadian tech companies are often heralded as great successes but these are false positives for our national economy. While some founders and their investors may pocket a few million dollars, this is the wrong metric by which to evaluate the benefits of publicly supported innovation. Canadian taxpayers spend billions annually on university research and development projects, the federal Industrial Research Assistance Program, Scientific Research and Experimental Development tax credits, and Canada’s technology hubs and accelerators (to name just a few of many programs).

Early acquisition and the expatriation of IP will too often result in the widespread economic benefits of Canadian public investment in innovation – job creation and tax revenue that commercialization creates – occurring elsewhere.

Under these circumstances, it is deeply troubling that those who speak loudest on behalf of our innovation ecosystem not only encourage the acquisition of early-stage Canadian companies and innovations before they grow to scale, but actively enable it.

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For example, tens of millions of taxpayers’ dollars have flowed to state-backed Chinese technology giant Huawei from various public institutions all while that company engaged in a concerted effort to acquire and expatriate Canadian-generated IP, as revealed by a recent Globe and Mail investigation. At the same time, the head of MaRS, a Toronto technology hub that houses the Canadian offices of several foreign tech giants, proclaimed that “Toronto’s tech ecosystem needs to continue attracting global firms such as Samsung and Uber” as if it’s a certainty that Canadian prosperity will follow from their presence.

The growing presence of foreign multinationals has devastating effects on scaling Canadian tech companies. Our companies already face higher hurdles in accessing capital. Now they are facing an increasing talent crunch. Ultimately, the increased presence of foreign giants in our own backyard restricts their ability to grow to a scale that sustains meaningful technical and non-technical job and wage growth for Canadians. Under this reality, early acquisition seems to be the preferred business strategy for Canadian tech entrepreneurs. This will have long-term consequences to our national prosperity and maintaining our standard of living.

Our leaders in this realm need to provide a focused mission orientation for our innovation inputs: Canada needs globally competitive, IP-intensive companies that are structured to succeed in the long-term by commercializing their innovations in a way that benefits Canadians in the form of high-paying jobs and economic growth that sustain the future tax base required to maintain our standard of living.

Every day we spend on the current trajectory is another day spent risking Canada’s future prosperity. There will be no reprieve if we miss the podium in this regard. No sector of the economy is safe from disruption. Few business models are safe from domination by global giants. If Canadians aren’t the winners in any industries at scale, our collective standard of living will erode. The billions of dollars we spend every year in the name of innovation will win us nothing more than a participation ribbon.

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Economy

Ten economic experts debate when the US may hit the next recession

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The U.S. economy is growing at a fast clip, and the bull market is entering its ninth year. But some economists are starting worry over rising interest rates and a negative signal from the bond market called a “flattening yield curve.”

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“The yield curve—with one exception in 1966—has basically predicted every recession,” Natixis Chief Economist Joseph LaVorgna told CNBC in July. “If the curve inverts let’s say in October, history would say the earliest you’d have a recession would be next summer, next August. And the latest would be August of 2020.”

“Now it’s possible that this time is different and the curve might be sending a different signal because long rates are relatively low,” LaVorgna added.

In July, the U.S. economic growth rate hit 4.1 percent for the second quarter, its fastest pace in four years. And the stock market is poised to make history Wednesday, when the nine-year bull market is supposed to become the longest in U.S. history. Here’s what 10 economic experts are saying of when and why the U.S. may hit the next recession.

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Tariffs hurting US economy, economists warn, with more pain to come if Trump withdraws from NAFTA

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Business economists are sounding some sour notes about Trump administration policies, from trade to immigration to the budget, while expecting the short-term boost to growth from Republican tax cuts to lessen over time.

The National Association for Business Economics survey showed 91 per cent of respondents said current tariffs and threats of more to come were having “unfavourable consequential impacts” on the U.S. economy, according to a report released Monday. About two-thirds saw negative effects if the U.S. withdraws from the North American Free Trade Agreement with Mexico and Canada.

In the wake of large tax cuts enacted in late 2017, the share of those saying fiscal policy is too stimulative rose to 71 per cent from 52 per cent in February, according to the responses of 251 members collected from July 19 to Aug. 2. And 81 per cent said the federal deficit’s share of gross domestic product should be reduced.

“In general, the panel expects the federal deficit, as a percentage of the economy, to grow in the longer term, with eight out of 10 panelists indicating that fiscal policy should help shrink the deficit as a share of the economy,” said survey chair Jim Diffley, an economist at IHS Markit Ltd.

Upbeat Tweets

The cautious views are at odds with the President Donald Trump’s upbeat assessment in tweets last week saying the U.S. economy is “better than ever.” Trump has also touted low rates of youth unemployment and, recently, falling joblessness among African-American and Hispanic workers.

While survey respondents continued to see deregulation and tax cuts giving a boost to growth in the short term, they also saw the effects diminishing over time as government debt continues to rise.

Almost two-thirds said the U.S. corporate tax system following the 2017 Tax Cuts and Jobs Act was an improvement over the previous regime in terms of equity and efficiency, while 25 per cent viewed it as “somewhat worse” or “far worse” than before.


Economists’ cautious views are at odds with the President Donald Trump’s upbeat assessment in tweets last week saying the U.S. economy is “better than ever.”

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Changes to personal income taxes fared worse, with only 31 per cent considering the new system better in terms of equity and efficiency and about 54 per cent judging it “somewhat worse” or “far worse.”

Some 37 per cent said the tax cuts would boost 2018 U.S. GDP growth by a quarter to half percentage point, while 24 per cent saw gains of a half point to three quarters of a point, the survey showed.

Fed On Point

Forecasters were more upbeat on the Federal Reserve, with 76 per cent saying monetary policy is on the right track, the most in the semiannual survey in more than 11 years, according to NABE. Nineteen percent of respondents in the current survey said policy is “too stimulative,” while four percent said the central bank’s stance is “too restrictive.”

“Most panelists believe the Federal Reserve’s current inflation target of 2 per cent should be maintained. Of the remaining panelists, more favor raising the target than lowering it,” said NABE Vice President Kevin Swift, chief economist for the American Chemistry Council.

Other findings included:

60 per cent said economic policy should do more to mitigate climate change.

74 per cent said economic policy should do more to alleviate income inequality.

63 per cent saw less than a 25 per cent chance of a meaningful infrastructure package in 2019.

45 per cent said the Trump administration’s deregulation drive has positively affected the economy so far, while 35 per cent saw it as a near-term plus that turns negative in the long run.

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Attack on economy like attack on Turkish flag: Erdoğan

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ANKARA

President Recep Tayyip Erdoğan has called the ongoing currency crisis an attack on the Turkish economy, which he described as an attack on the Turkish flag and call to prayer, indirectly defying the United States administration’s warnings of more sanctions if the U.S. pastor is not released soon. 

“An attack on our economy is no different from a direct strike against our flag and call to prayer. The purpose is not different. It aims to bring Turkey and the Turkish people to their knees,” Erdoğan said in his Eid al-Adha message on early Aug. 20.

Erdoğan’s message did not cite the U.S. administration but obviously referred to an ongoing spat between the two allies over the detention of pastor Andrew Brunson over terror charges.

“We are not going to take it sitting down,” said U.S. President Donald Trump on Aug. 17, openly threatening Turkey with more sanctions for the continued detention of the pastor.

Trump also denounced Turkey as a “problem for a long time.”

At a cabinet meeting on Aug. 17, U.S. Treasury Secretary Steven Munchin assured further sanctions were ready to be put in place if Brunson was not freed.

“We have more that we are planning to do if they don’t release him quickly,” said Munchin.

The Turkish Lira has lost around 40 percent value against the U.S. dollar in the last month.

In response, Turkey said it would retaliate against any sanctions to be imposed by the U.S., blaming the Trump administration for using the Brunson case for its internal political objectives on the eve of midterm congressional elections in the U.S.

Erdoğan had repeated that Turkey saw the conspiracy plotted on Turkey in a statement over the weekend, vowing to walk tall against U.S. threats.

In his message on Aug. 20, Erdoğan reminded that the Turkish people could avert all attacks thanks to their ability to act in unity in difficult times, recalling the coup attempt in 2016.

“Our people are acting with the same merit today,” he said.

“We are a kind of a people who prefer to be beheaded instead of being chained around the neck,” said the Turkish president.

‘They will see they are mistaken’

Erdoğan underlined that those who think they can make Turkey give up through the exchange rate will soon see they are mistaken.

“If those who have failed to make Turkey give up through terror organizations and local treacherous gangs with all sorts of traps and tricks, think they can make Turkey give up through exchange rates, they will soon see they are mistaken. Our country, God willing, has enough power and ability to overcome this,” he said.

Turkey and the U.S. also differ on the status of the People’s Protection Units (YPG) in Syria, a group the former designated as a terror organization but the latter as an effective partner in the fight against the Islamic State of Iraq and the Levant (ISIL) in Syria. Turkey has long been accusing the U.S. of backing and arming the YPG, which constitutes an important security threat against its NATO ally.

Politics, Economy, Recep Tayyip Erdoğan

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