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

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François-Philippe Champagne, Minister of Innovation, Science and Industry, acknowledged Monday that challenges related to productivity and innovation policy have been an issue in Canada ‘for decades.’Heywood Yu/The Globe and Mail

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.

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“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.

Canada has leading AI experts. But does Ottawa have the right plan to support an AI industry?

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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Canada expected to buck trend of big investment banking layoffs – Reuters

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TORONTO, Jan 26 (Reuters) – Some of Canada’s top investment banks plan to maintain staffing levels to meet client expectations for the same level of coverage through the ups and downs of business cycles, head hunters and industry executives said.

U.S. investment banks, including Goldman Sachs (GS.N), began cutting over 3,000 employees on Jan. 11 citing a challenging macroeconomic environment, raising fears Canadian banks may follow suit. Like their global peers, many Canadian investment banks had staffed up during the pandemic only to see dealmaking slow last year.

At Royal Bank of Canada (RY.TO), the country’s biggest lender, for instance, headcount at its capital markets division jumped by 71% over the two years ending Oct. 31, 2022 to 6,887 employees.

But in the meantime Canadian dealmaking fell 39.7% last year to $89.7 billion. That is more than the 36% drop in global deal values to $3.8 trillion following a stellar 2021, according to data from Dealogic.

Yet, Canadian banks have not announced layoffs and some even say they may increase headcount, though dealmaking in the new year is down nearly 50% to $3.2 billion from a year ago, according to Dealogic.

“Right now there is a sense that there isn’t a need for cuts in the system,” Dominique Fortier, partner at recruitment firm Heidrick & Struggles’ Toronto office, told Reuters.

“When there was an upswing in 2021, it happened so quickly that there was no corresponding increase in hiring and so I don’t see that we’ll have the same decrease in terms of headcount coming.”

Toronto Dominion Bank (TD.TO), which last year agreed to buy New York-based boutique investment bank Cowen Inc (COWN.O), expects to continue to grow its global investment banking business as it work towards closing the deal, a spokesperson said.

Desjardins, another Canadian lender, will continue to invest in its growing capital markets division, a spokesperson said.

EXPENSIVE PROPOSITION

Bill Vlaad, a Toronto-based recruiter who specializes in the financial services sector, said that while there was some nervousness around the stability of investment banking teams, Canada is unlikely to see U.S.-level redundancies aside from the annual cull of poor performers called “maintenance layoffs.”

“The U.S. is very nimble. They will go in and out of hotspots very quickly. Canada doesn’t have that same luxury and has to stay relatively consistent in coverage,” said Vlaad.

“You have a consistent group of people working…and they don’t fluctuate all that much year to year, decade to decade.”

But another down year for dealmaking could see bonuses taking a hit.

RBC, which was ranked No. 2 in Canada M&A, equity capital markets and debt capital markets last year according to Dealogic, has no layoff plans for investment banking in Canada, a source with knowledge of the matter said.

Spokespeople for JP Morgan, which topped the M&A league table last year, Scotiabank (BNS.TO) and Canadian Imperial Bank of Commerce (CM.TO) declined to comment. BMO did not respond to requests for comment.

Headhunters and lawyers say it’s less expensive to lay off bankers in the United States compared to Canada.

Howard Levitt, senior partner at employment law firm Levitt Sheikh, said Canadian investment banking employees would be entitled to somewhere between four and 27 months severance with full remuneration depending on their status, re-employability, age and length of service.

Reporting by Maiya Keidan
Editing by Denny Thomas and Deepa Babington

Our Standards: The Thomson Reuters Trust Principles.

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Weaker Orders, Investment Underscore Ailing US Manufacturing – BNN Bloomberg

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(Bloomberg) — US manufacturing showed more signs this week of succumbing to the Federal Reserve’s aggressive interest-rate hikes that are taking a bigger bite out of demand and risk upending the economic expansion.

The government’s first estimate of gross domestic product for the fourth quarter and a report on December factory orders for durable goods pointed to sizable downshifts in both spending on business equipment and bookings for core capital goods.

The durable goods report Thursday showed orders for nondefense capital goods excluding aircraft — a proxy for business investment — dropped 0.2% in December after no change a month earlier. Over the fourth quarter, bookings for these core capital goods posted the weakest annualized gain since 2020. Shipments, an input for GDP, decreased for the third time in four months.

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“Taken in tandem with the output data where industrial production has declined in six of the past eight months, it is increasingly evident that the manufacturing recession is well underway,” Wells Fargo & Co. economists Tim Quinlan and Shannon Seery said in a note to clients.

Also on Thursday, the GDP report showed outlays for business equipment dropped an annualized 3.7%, the largest slide since the immediate aftermath of the pandemic. That decline was part of a broader demand slowdown, which included a smaller-than-forecast advance in personal spending.

While GDP growth beat expectations, details of the report that offer a clearer picture of domestic demand were decidedly weak. Inflation-adjusted final sales to private domestic purchasers, which strip out inventories and net exports while excluding government spending, rose at a paltry 0.2% rate — also the weakest since the second quarter of 2020.

Last month’s retreat in core capital goods orders indicates manufacturing output, which already registered sharp declines in the final two months of 2022, may struggle to gain traction this quarter.

Read more: Weak US Retail Sales, Factory Data Heighten Recession Concerns

The slump in housing is also spilling over into producers of non-durable goods. Shares of Sherwin-Williams Co. tumbled this week after the paintmaker pointed to pressures stemming from a weak residential real estate market and inflation.

“We currently see a very challenging demand environment in 2023 and visibility beyond our first half is limited,” Chief Executive Officer John Morikis said on a Jan. 26 earnings call. “The Fed has also been quite clear about its intention to slow down demand in its effort to tame inflation.”

An accumulation of inventories only adds to the headwinds. Inventory building accounted for about half of the 2.9% annualized increase in fourth-quarter GDP. For the year as a whole, inventories grew $123.3 billion, the most since 2015.

With demand moderating, there’s less incentive to ramp up orders or production as companies make greater efforts to sell from existing stock.

In addition to the aforementioned data, the latest surveys of manufacturers show sustained weakness. Measures of orders at factories in four regional Fed surveys have all indicated multiple months of contraction. 

All surveys released so far for this month are consistent with an overall contraction in activity that extends back through most of the second half of 2022. 

Next week, the Institute for Supply Management will issue its January manufacturing survey and economists project a third-straight month of shrinking activity.

©2023 Bloomberg L.P.

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Opinion: Now is the time to invest in post-secondary education – Edmonton Journal

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Article content

If the last few years have taught us anything, it’s that the world — and the global economy — can go through seismic shifts in a relatively short amount of time. Since I began my term as president of the University of Alberta in 2020, we have witnessed a pandemic and a corresponding global recession, followed by an economic rebound. We have turned the corner, perhaps more quickly than any of us could have imagined. Alberta’s economic outlook is now positive, with ATB Financial predicting 2.8-per-cent real GDP growth in 2023.

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To ensure a prosperous future, we must maintain an Alberta that attracts and retains talented people and investments. With a strong post-secondary learning system, Albertans can get the high-quality training and skills they need — right here at home — to meet the labour market needs of tomorrow’s economy.

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The province is facing a continuously tight labour market. The Government of Canada’s October Labour Market Bulletin for Alberta warned: “While the province has been experiencing an economic windfall recently, labour shortages in key sectors, especially the health-care sector, continue to threaten growth.” By 2030, experts predict an acute need for more engineering, health care, science and business professionals.

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We are fortunate that our province is home to a young and growing population. The number of Alberta high school graduates is projected to grow by 20 per cent in the next five years. To accommodate this demographic boon, we urgently need to grow Alberta’s post-secondary sector so that these high school graduates will have the opportunities they need to thrive in Alberta’s growing economy.

We are tackling this challenge head-on at the University of Alberta, where we are home to 25 per cent of Alberta’s post-secondary students. In partnership with the province, we’ve been actively investing in enrolment growth to support these areas of greatest demand. We now have record-high enrolment, with over 44,000 students, including over 1,600 Indigenous students.

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Last year, the U of A received $48.3 million from the provincial government’s Alberta at Work program to support enrolment growth. This investment is paying dividends, enabling us to grow by another 2,600 students, increasing the number of young Albertans who can study at home at one of the world’s top 100 universities. But we’re not going to stop there. We’re aiming to increase our enrolment to over 50,000 students by 2026.

With Alberta’s upcoming 2023-23 budget on the horizon, we have proposed to the Government of Alberta an ambitious plan to grow by another 3,500 students, targeted to the areas of greatest employer and student demand. With this expansion, we can reach our goal of over 50,000 students by 2026. We are keen to play our part in continuing to meet the needs of tomorrow’s labour market, ensuring a bright future for the province.

University of Alberta graduates are critical drivers of economic growth and prosperity. Over the last decade, 84 per cent of our graduates have stayed in Alberta, helping to grow and diversify the economy. Ninety-four per cent of our graduates are employed two years after graduation, with 97 per cent of graduates working in a job related to their field of study.

When the U of A grows, everyone in Alberta benefits.

Bill Flanagan is president and vice-chancellor of the University of Alberta.

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