OTTAWA — The federal government’s latest innovation program isn’t the answer to Canada’s long-running economic problems of stagnant productivity and lacklustre business innovation, one of its architects says. But Dan Breznitz is betting the Canada Innovation Corporation (CIC) can be an answer.
For years, the University of Toronto political economist has warned that Canada’s economy is headed down a perilous path: while its workforce is more educated than almost any other country’s, its businesses have invested too little in R&D and technology adoption. As a result, he observed, productivity and workers’ wages have flatlined.
Talking Points
- Leaders of the new Canada Innovation Corporation will need to experiment with new programs to support business R&D and commercialization, making decisions unswayed by government or industry, one of its architects says
- Political economist Dan Breznitz—who worked with officials from the finance and industry departments to develop the organization’s blueprint—says Canada needs to avoid simply following the U.S. on economic policy
In October 2021, Breznitz was appointed the Clifford Clark Visiting Economist at Finance Canada, an advisory role. He arrived as the Liberal government was contemplating a new innovation agency, another program among the many it’s launched and capitalized since taking office.
In February, Ottawa unveiled a blueprint for the CIC, a co-production of Finance Canada and Innovation, Science and Economic Development Canada (ISED). The CIC will provide companies with financing ranging from $50,000 to $20 million to develop new products and services or adapt existing technologies for new applications. The new Crown corporation will also absorb the National Research Council’s Industrial Research Assistance Program (IRAP), a scheme well-loved among startups and scale-ups.
Late last month, Breznitz spoke with The Logic about what the CIC will and won’t do, and how it’s different from all the other federal innovation programs he’s previously deemed ineffectual.
This interview has been edited for length and clarity.
What role did you play in the design and implementation of this agency?
Unlike Elon Musk or maybe Jeff Bezos, I don’t think that things happen just because of me. There’s a whole team in the two ministries without whom it would never have happened. I championed the idea. Once we made the decision on [the form it would take], I worked with those two teams about actually creating the agency and the blueprint and the legislation that you see.
We are talking about both structural and long-term systemic problems. It started around ’96, if you look at the data. So anyone who says, ‘We have one program which will give a solution for an affliction that [has] involved all the business sectors for the last 30-something years,’ is either lying or delusional. Instead we said, ‘Let’s think about what it is that we really want to change in the Canadian economy.’ Those will be both the mission but also the metrics. And then create an organization that is able to start hitting this problem from different directions, whose leadership can experiment.
If you look at the blueprint, the CEO should very easily within three months [be able to] implement a new program. If you have to do it at the ministerial level, maybe you could implement one program every two or three years. We recognize that Canada is unbelievably large and diverse. The problem of innovation is in all stages of production. There needs to be different programs that will benefit different sectors of Canadian industries in different parts of Canada.
One of the things that this corporation needs to do is very, very quickly—best practices around the world are 12 weeks or less—make a decision about funding. You look at the project, and you need to be able to evaluate it technologically, very quickly but to a very high level. The more we started to think about some of the programs that this agency needs to run, the more it became clear that it needs exactly the same people that IRAP does. We don’t have a lot of them in Canada, because for 30 years, we didn’t bother to innovate too much. And that’s how we started those discussions with the IRAP folks.
You have two ministers involved in this organization who have a stake in it succeeding. How confident are you that they will maintain its independence?
That’s why we chose this kind of legal structure—it is the most you can do in order to create independence. The CEO and other key personnel, including the board, come from the private sector. The Crown corporation is funded by structural transfers that are set by law. So it’s not that somebody has to make sure that people in ISED or certain ministers are very happy in order to ask for another $50 million.
A lot of that independence will be dependent on informal mechanisms. Whoever is going to be the first CEO and chairperson are crucial. At some point, they will get a phone call from the minister or from a political adviser. And they need to [be able to tell them], ‘Look, that might be a very, very interesting thing to do, and may even be good for Canada. But it’s actually not part of our mission.’
“If we don’t innovate in the areas where nature, God—whoever you believe it is—or geography gave us unbelievable advantages, then we are stupid.”
But they also need to be able to do exactly the same thing to business leaders. In Canada, multiple industries that need to have more innovation are basically a very closed club. You need to have people that can sit with the CEOs of the biggest Canadian banks, insurance companies, or mining companies, and tell them, ‘Friends, this is an independent organization. This is what we’re going to do. And by the way, this is good for all of Canada and we expect you to also do your own duty to your country.’ Because innovation doesn’t happen in government. It happens in the private sector.
In the Fall Economic Statement lockup, a senior government official said the focus of this agency would be bringing innovation to traditional sectors like energy and agriculture. Is that how you understand the job of the CIC?
We need to have more innovation in all sectors of the Canadian economy; there are some sectors where there’s basically none. If we don’t innovate in the areas where nature, God—whoever you believe it is—or geography gave us unbelievable advantages, then we are stupid.
We have critical minerals. We now claim that we want to have more of them moved out of the ground and used. One way of doing it is following what happened in Alberta and oil: we dig it from the ground, we stabilize it and then we move it as fast as possible outside of Canada, [adding no] value or innovation on it. Let other people use brains to make huge gains. Then we buy it back and probably overpay for it.
Or can we decide that this time is different, and we put a huge amount of innovation in what’s called traditional industries. So taking those ores, refining them, then figuring out how to use those minerals, maybe all the way to electric vehicles, magnets and whatever.
If we do not focus on those sectors and opportunities as well—instead of just on AI and quantum—then, as civil servants who actually created that agency, that would be a dereliction of duty.
One of the critiques of this organization is that it’s just another R&D granting agency. Is the way it’s going to approach funding different?
Yes. We have businesses who don’t like risk and uncertainty. They are very lazy, and they could get really high profits without doing innovation. So how are you going to move them to do more innovation?
You can educate them. You can put the fear of God into them, also known as competition policy. The government has failed to create a real competition framework in Canada for the last 30 years. Without doing that—so we start to compete based on innovation, not just protection and price—we are going to be stagnant no matter how much money [we give] business.
The other way is—I don’t want to call it ‘bribe’—but you lower the cost of those businesses to start, and see that innovation can actually bring them profits and money.
These are matching grants, so those businesses will have to put some skin in the game. If you want money from this Crown corporation, you have to come up with a project that leads to a new product or improved products or services. It will then be judged technologically whether you can do it or not. And you will get the money upfront, [with a decision] within 12 weeks. It is not a two- or three-year process.
Many small- and medium-sized enterprises—and I’m not talking about startups—know that they need to do innovation and have good ideas. But they can’t take the risk, so they never start. This is: You give a business plan that you have to develop [for] your own business. You send it to people that know the business. And you get an answer in less than 12 weeks.
When we spoke last year, you highlighted that Finance Minister Chrystia Freeland was talking about productivity and growth in the budget, which you noted we hadn’t heard someone in a top political position talk about for 30 years. Over the last few months, the conversation in Ottawa has shifted to Canada’s response to the U.S. Inflation Reduction Act and green industrial policy. Is there still enough of a focus on productivity and growth?
What you’re asking is whether you think that as the Clifford Clark economist I have helped—not alone, but I have helped—change the debate and the paradigm of what the real core problems of Canada are?
To a degree, yes. But I fear—and this is not just in economics—Canada has become a reactive state. Think about what you just said. We, again, are reacting instead of focusing on our problems: the private business-market failure around productivity. We’re again [following] the patterns of the U.S.: ‘How are we going to react to the Inflation Reduction Act?’ We are not strategic. We tend to lose focus.
I think the discussion has changed, and we now realize those issues about productivity and growth. But I’m not sure that this is ingrained deep enough into Ottawa, on both the political side and the civil-service side. If we ever want to have long-term prosperity, we as a country need to identify and understand our real problems, then figure out a strategy to solve them. And the [CIC] is just one attempt. It cannot be the only one.
Of course, we are not the U.S. or China or even the EU. We need to react to what other countries are doing. But it cannot be our sole strategy to wait for somebody else to make a strategic decision and then react.
[Previously] nobody said ‘productivity’ or talked about growth, and I think this is now ingrained in some of the processes in Finance and ISED. So that’s good. I would give myself a B- on a good day; maybe a C+. But if we are not focused on our long-term problems—instead of whatever Biden, or whoever the president would be, does—then we are going to have structural problems.
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