Why Canada Will Fail at Innovation

A laser beam apparatus
Lasers: the epitome of innovation.

A recent Globe & Mail article described the stark choices facing commodity producers such as Canada in a world where commodity prices have been depressed for years, and look to remain so for the near future. The article spoke of the need for the government to “make Canada over as an innovation hub that can carve out a strong, job-creating niche in a rapidly changing global landscape.”

An admirable goal, except for a few problems:

  1. Governments are the opposite of innovative and (with a few notable exceptions) consistently show themselves incapable of planning and developing innovative economies.
  2. Governments are pretty lousy at picking winners and losers in designing an economy, and usually fail to achieve their goals when throwing cash at the winners.
  3. Global competition to innovate is insane, which means that even if a given national government is halfway competent at economic planning, they’re still likely to lose the innovation race.

Point #2 may be the most egregious in the list. Ironically, the economic “designated winners” previously picked by a certain Canadian prime minister are the very oil & gas companies whose collapse dragged the Canadian economy into recession when oil prices cratered. This ended said prime minister’s dream to establish Canada as an energy superpower. The degree to which the Albertan and Canadian economies have been sucking wind for almost three years as a result testifies to the disastrous consequences of government attempts to pick winners and losers in an economy. This is important, because picking winners and losers is usually what passes for governmental innovation strategy.

A man at a poker table, with a losing hand in front of him

For every winner, there must be a loser….

Broadly speaking, governments aren’t innovative. In fact, they’re the antithesis of innovation: they innovate mildly when they’re thrown out of office and have to think up a way to get back in. Governments are bureaucratic hierarchies that tend to be about as dynamic and progressive as the Catholic Church in the 16th century. If you don’t believe me, take a look at attempts to duplicate the fetishized epicentre of global innovation, Silicon Valley.

Countless attempts to copy Silicon Valley have been met with limited or no success. The main reason is the myth that federal defense research dollars created the Valley. They didn’t; a confluence of factors did:

  • Abundant venture capital
  • Excellent universities
  • A tax regime supportive of business
  • A culture of entrepreneurship
  • Intangibles such as culture, quality of life and even weather

Even though it’s held up as a kind of aspirational goal for innovation, Silicon Valley is one small part of the overall American economy: it doesn’t scale. The only economies that have scaled innovation are small, such as Singapore. Even then, Singapore didn’t achieve its economic miracle on the back of high tech: it merely leveraged high tech late in its growth cycle.

The idea that a central government can create a national “innovation economy” is a pipe dream. Government can inject cash into a region through top-tier universities and research institutes, and rejig their tax regime to support small and medium-sized business, but that’s about all they can do. Governments aren’t capable of developing a culture of entrepreneurship any more than they can develop a culture of politeness or glee: that’s called social engineering, and it rarely works.

Canada doesn’t have anything like Silicon Valley, nor will it ever. Neither does the second biggest country in the world by land mass have the ability to scale success the way tiny Singapore did. Canada does not have a broad-based culture of entrepreneurship; it has a conservative, comparatively timid business culture. It isn’t blessed with many world-class universities: it has one in the global top 20 and just four in the top 100. Canada does have a mind-boggling array of natural resources and some modest technology and innovation hubs, mainly in Toronto, and to a lesser extent in Vancouver and Montreal.

What’s the best thing the Canadian government could do, if it wanted to create an innovation economy? It could support the universities and research institutes capable of growing existing innovation hubs, and it could work to reduce structural impediments to economic activity. After that it should stay the hell out of the way and hope for the best.

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