Empty talk on innovation is killing Canada’s economic prosperity

By Jim Balsillie
Globe & Mail
Feb 05, 2019

Jim Balsillie is former co-CEO of BlackBerry and co-founder of the Institute for New Economic Thinking.

An video update is available for a limited time at TVO.org https://www.tvo.org/video/programs/the-agenda-with-steve-paikin/jim-balsillie-dragging-canada-into-the-21st-century


If overuse of the word "innovation" was our only problem, Canadians would not have much to fear. What we should fear is a stubborn reliance on 19th- and 20th-century policy strategies that have nothing to do with how wealth is generated in the 21st-century global economy.

Canada has the most superficial discourse around innovation policy in any of the 140 countries I've done business in. The number of commentators claiming to have the answer to improving innovation are without limit, yet they're depressingly limited.

Immigration, traditional infrastructure such as roads and bridges, tax policy, stable banking regulation and traditional trade agreements are all 19th- and 20th-century economic levers that advance Canada's traditional industries, but they have little impact on 21st-century productivity.

The outdated economic orthodoxy behind our discourse on innovation is causing the steady erosion of our national prosperity.

 Over the past 30 years, commercialization of intellectual property (IP) became the primary driver of new wealth. The structure of the 21st-century company shifted and IP became the most valuable corporate asset. IP is an intangible good that requires policy infrastructure that's completely different than the infrastructure required to get traditional tangible goods to market. IP relies on a tightly designed ecosystem of highly technical interlocking policies focused on scaling companies, which are "agents" of innovation outputs.

Instead of building this new infrastructure 30 years ago, the Canadian government ignored advice to develop an innovation policy. It opted to rely on 20th-century economic tools, chasing productivity by confusing both science and technology policy with innovation policy, and branch-plant job strategies with innovation strategies.

Fast-forward to today and Canada has achieved zero growth in our innovation outputs despite hundreds of billions of taxpayers' dollars spent on inputs. Compare that with the United States, which relentlessly built 21st-century policy infrastructure and saw its innovation productivity grow at 1 per cent per annum over the past three decades. If Canada performed similarly, our economy would now be generating an extra $100-billion annually.

Our leading economic experts continue to offer policy strategies that have no bearing on the 21st-century economy. In 2016, the Governor of the Bank of Canada called the removal of trade tariffs "top of the list as a policy move." Canada currently has 14 free-trade agreements – 10 more than it did a decade ago – yet, our export volumes are shrinking. Canada doesn't have valuable IP to sell to the world so we continue exporting low-margin resource and agricultural goods while importing high-margin IP. If our leaders want to create sustainable economic growth, Canada's growth strategy must focus on creating high-margin IP-based exports that the world wants and must pay for.

Economists that understand the 21st century know what's happening: IP ownership is the competitive driver in the new global economy, not exchange rates that adjust production costs. That's why despite the strong U.S. dollar, U.S. company valuations and exports are soaring – IP-intensive industries added $6.6-trillion (U.S.) to the U.S. economy in 2014. So what is Canada's strategy to increase our ownership of valuable IP assets and commercialize them globally? Supply chains in the innovation economy are different than in traditional economies because IP operates on a winner-take-all economic principle with zero marginal production costs. IP is traded differently than tangible goods because IP moves across borders on the principle of restriction, not free trade. Trade liberalization increases competition and reduces prices, but increased IP protection does the exact opposite. The economy for intangible goods is fundamentally different than the one for tangible goods. Productivity in the global innovation economy is driven by new ideas that generate new revenue for new markets. What Canada needs is a strategy to turn its new ideas into new revenue.

 We do not have strategies for advancing Canada's prosperity in the new global economy because those tasked with prosperity policies can't even get the basics right. A recent report by our government's "Growth Council" asserts Canada "does not benefit as much as it should from the intellectual property that it generates," fundamentally missing the fact that Canada does not generate IP. That's why stronger global standards for IP protection advantage countries that are sophisticated in generating IP.

Consider "machine learning," an area the government indicates it plans to invest more taxpayer dollars into in the upcoming budget. Microsoft owns 1,030 machine-learning patents while all of Canada owns only 48, with almost half of these owned by BlackBerry. The council also recommends Canada focus its efforts on agriculture, without any mention that food and beverage is the sector with the fastest growth of patents granted, because in the 21st century food is a tech game. You can't scale land, but you can scale technology, and Canada doesn't have a strategy for it. That's why China's academics receive 92 per cent of ag-tech patents granted and will use them to develop strategies to disrupt farmers the way Uber disrupted the taxi industry.

The Growth Council missed our overriding priority for growth: a national strategy to generate IP that Canadian companies can commercialize to scale globally.

We urgently need sophisticated strategies to drive the commercialization of Canadian ideas through our most innovative companies. If we don't, our only growth will be more non-innovation innovation reports shaped by calcified policy thinking and business elites who have gradually come to constitute a formidable self-reinforcing constituency.

We are on the verge of developing a uniquely Canadian brand of content-less discourse about innovation and economic growth. We are one more year further into eroding our national prosperity while successful innovation economies are one year stronger in advancing their economic drivers. It's time we insist our policy and business community propose ideas that resemble how 21st-century economic growth is created.