More on Canada’s innovation and growth challenge

Does Canada have an innovation problem or a corporate growth problem?

Another week goes by and another tree gives it life to a story about Canada’s ongoing innovation problem. Case in point is this story in the Globe and Mail which notes that “Despite bright spots in Waterloo, Ont., and Ottawa, the country’s performance on most of the important benchmarks of innovation has been deteriorating for years.”

To put why this matters in perspective, here’s the recently released 2013 Forbes list of Most Innovative Companies. Of 100 companies on the list, just 1 makes it home in Canada. That company, Valeant Pharmaceuticals (formerly Biovail) is a generic drug maker. By way of comparison, there are 39 US companies on the list, 13 Japanese, 7 French, and 5 from both Germany and the UK.

If one wanted to do a more detailed look at this “geography of innovation,” one might break the list down on a per capita basis. Based on GDP, Canada ranks dead last amongst the 20 countries measured, significantly behind comparatively similar economies in the UK, France and Germany. By population, ditto, as we saddle up beside Spain and watch every other comparable economy race past us.

No matter how you cut it, the end result is the same – Canada ranks dismally on a relative scale of innovation prowess. This despite government spending on R&D that is amongst the highest in the OECD, and despite consistently high scores on  measures of startup activity (see here and here). So what gives?

As Anthony and I write in our May 2013 report on “Driving Canadian Growth and Innovation,” Canada’s innovation problem is tied directly to an equally significant growth problem. We do a poor job graduating small firms into large, innovative ones. And so while the funnel of entrepreneurial startups may be wide, our success at channeling them into billion-dollar global leaders is weak.

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On trade, keeping us in the dark doesn’t do anyone any favours.

In the 1980’s, a joint Senate-Commons committee held thousands of public hearings on the topic of US-Canadian trade, and on the then-proposed US-Canada free trade agreement (FTA). By one estimate, over 13,000 public hearings on international trade were held. Shortly thereafter, in 1988, Canadians went to the polls in a Federal election that stood as an implicit referendum on that particular agreement.

Fast forward to ongoing negotiations between Canada and the European Union on a Comprehensive Economic and Trade Agreement (CETA) and there’s no such public scrutiny nor public participation. To be sure, groups like the Council of Canadians have crowed loudly about the potential costs of any such deal. The government, however, has done little to engage Canadians. The official CETA webpage, updated last month, lists one previous public event; one event in four years of negotiations.  As a result, public dialogue regarding CETA has been minimal, and public engagement even less so.

All this despite the fact that CETA’s success or failure will have significant long-term effects on the Canadian economy. Leaving aside the poorly-evidenced job creation and economic growth figures bandied about by the Government, the deal is about diversifying Canada’s patterns of global trade and accessing a growing market of over 700 million. And while gravity will keep the majority of Canadian goods and services exports flowing south of the border, facilitating more exports and cheaper imports with the EU is an important strategic step. This diversifying element notwithstanding, the potential impacts of the deal on public procurement, healthcare spending, labour mobility and sectors of the economy provided with protection from external trade such as agriculture, require a transparent and open conversation.

Unfortunately Canadians might never get a chance to have this conversation. Recent news from both Ottawa and Brussels has implied that Canada’s attempts to finalize CETA may fall short. And while some will certainly celebrate this, we should be careful not to ignore the potentially damaging impacts of this failure.

In the short term, few visible impacts will be felt, aside from the reputational hit on the current government. Contracts will be fulfilled, orders replenished and investment patterns unchanged. However the mid- and long-term impacts of this negotiating failure could be far more damaging. The recent launch of U.S. – EU talks on a trans-Atlantic trade agreement between the world’s two largest economic blocs could, if successful, amplify Canada’s negotiating failure by providing privileged access to US, rather than Canadian exporters, to the European market. Given the similar basket of non-resource goods and services originating in both Canada and the U.S., allowing four years of negotiation to lead to failure will mean a distinct disadvantage for Canadian exporters and importers.

And while it’s true that no deal is better than a bad deal, given what’s at stake for both Canadian exporters and importers, the government must do all it can to sign a win- win agreement. Defining this win-win, however, must acknowledge that some sectors will lose in the process. In a well functioning, transparent system, it is up to the government of the day to transparently communicate how that balance of wins and losses falls domestically. Here the public has been left in the dark.

Moving forward, if efforts towards preferential access to Europe fail, our leaders better have a backup plan targeting other, preferably growing economies to ensure that we don’t get left out of the global trade dance. Yet in so doing, lest they forget that Canadians deserve to be kept informed along the way. Building the necessary support across Canada for an aggressive trade agenda will require it.