Can the Liberal government fix its sorry innovation record with a new agency?

After years of disappointing innovation programs that haven’t fixed Canada’s chronic economic underperformance, the Liberal government is still trying to get it right.

Its latest attempt is the Canadian Innovation and Investment Agency, announced in the 2022 budget as a surprise replacement for a program the party had promised in the 2021 election campaign, but pulled: a Canadian version of the U.S. Defense Advanced Research Projects Agency, which spearheaded the creation of technologies such as the internet.

Like other federal innovation programs, the CIIA, which will help underwrite business expenditures on research and development, is inspired by success elsewhere. The Finnish Funding Agency for Innovation helped transform the Nordic country’s low-tech sectors, such as forestry, into innovative, competitive industries.

Ottawa’s idea won plaudits from longtime government innovation critic Dan Breznitz, co-director of the Innovation Policy Lab with the University of Toronto’s Munk School of Global Affairs and Public Policy. He praised the idea when the CIIA was announced.

“There is finally a realization that the problem in innovation and engagement with new technology is not the lack of new ideas or human capital but the private market … this is a systemic problem,” said Mr. Breznitz at the time, when he was a visiting economist with the Finance Department.

He added that the CIIA could succeed if it is nimble, independent, engaged with business and free to experiment.

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A backgrounder prepared by the Canadian government last fall shows it has been listening to critics: Funding proposals will be assessed based on whether projects have potential to create and retain intellectual property in Canada and commercialize resulting products globally.

Industry groups consulted by Ottawa said the program must be easy to navigate, reach entities that have not traditionally done R&D, get companies to commercialization and scale and keep the economic value of investments here.

The government did not deliver details about the agency in its fall economic update, as it initially promised. Innovation policy watchers are now waiting to see if Ottawa selects the right leaders and governance structures to deliver on the agency’s mandate.

What also isn’t clear is how much the CIIA can change chronically uninventive Canadian companies or whether an agency modelled on a small country in the European Union will work here.

And while the agency’s focus on business investment in R&D, IP and commercialization is promising, Benjamin Bergen, president of the Canadian Council of Innovators (CCI), said “if the CIAA winds up being another funding agency, rather than a focused organization to steer policy structures and improve innovation policy outcomes across Canada’s economy, it will fail to move the needle.”

Another question is how much innovation funded companies can patent and claim as their own after a long head start by global competitors. Waterloo patent lawyer Jim Hinton said the CIIA “won’t work unless it recognizes the existing technology foundation that any new company would necessarily be building on is currently not owned by Canadian companies.”

He worries companies may have to pay holders of existing patents, which would “simply be another wealth transfer of Canadian funds” abroad.

Where do we go from here?

To make innovation work, the Canadian government might need something that has been lacking in an advanced country blessed with national resources, relative geopolitical stability and a big trading partner to the south: a sense of urgency.

Robert Asselin, who was budget director for then finance minister Bill Morneau and is now senior vice-president of policy with the Business Council of Canada, says that urgency has been a common thread in government-led creation of innovative clusters in several other countries.

In the Netherlands, he said, postwar food security concerns sparked creation of a huge agri-food exporting sector. For South Korea, a successful electronics industry gave a small country in a geopolitically tense region economic might. When the Soviet Union got to space first, it jolted the United States into action; the space race had major spinoff benefits for U.S. companies.

“These three didn’t succeed because of market forces; they were designed as public-private partnerships,” Mr. Asselin said. “This is where industrial policy needs to go, as opposed to subsidies we throw everywhere.”

Asked about Ottawa’s continuing struggle to turn its innovation investment into real productivity growth, which The Globe and Mail has been reporting on in a story series, Innovation Minister François-Philippe Champagne said Monday, “Innovation is a journey, it’s not a destination.” He acknowledged challenges related to productivity and innovation policy have been an issue in Canada “for decades, but we’re really serious in terms of focusing on that and bringing perhaps novel solutions.”

Perhaps it will take a crisis to focus minds in Ottawa – maybe resulting from an inward-looking U.S. leaving Canada vulnerable in a mercantilist world. But the government doesn’t have to wait; there are plenty of suggestions for what to do.

Mr. Bergen says government must build capacity in the public service for navigating the knowledge economy and setting clear evaluation metrics for policies. Some observers feel the government has relied too much on consultants for ideas.

Diverting procurement dollars to startups has helped expand the U.S. economy. Our government has a similar program, Innovative Solutions Canada, that has been underused. The program can do more and needs a champion in government, Mr. Bergen says.

There are also many proponents for an overhaul of the Scientific Research and Experimental Development tax credit, Ottawa’s largest expenditure on innovation. The tool provides $3-billion-plus in credits to companies that perform R&D here.

But it doesn’t cover expenses related to commercialization, which would reward companies that take their innovations to market and deliver economic returns. That should change, the CCI says. The government promised last year to reform the program.

Focusing innovation initiatives on helping promising startups grow into global giants should be the top priority. That has been the clear call from many observers, and was the first recommendation in fall 2018 from Canada’s Economic Strategy Tables, made up of advisers in six sectors and commissioned by Ottawa to propose economic growth ideas.

Ottawa could also incentivize domestic pension funds to direct more investment dollars to Canadian tech, Mr. Asselin says.

Meanwhile, said Angela Mondou, CEO of technology lobby group Technation, “Canada’s global competitiveness depends on bringing Canada’s technology adoption rate to par with our global counterparts. A clearly defined digital strategy is non-negotiable.”

With files from Temur Durrani

 

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