Canada 2020

Standing room only as panelists debate innovation and productivity

February 24, 2012

Ottawa – Productivity is down, innovation is lagging, and staying the course does not bode well for Canada’s future.

Over 300 people gathered in Ottawa’s Chateau Laurier hotel on Thursday night for the second panel in Canada 2020’s series following the launch of its book, The Canada We Want in 2020. The four very experienced panelists, all contributing authors to this book, laid out their views about Canada’s innovation and productivity problem.

The evening was hosted by the Chair of Canada 2020’s Advisory Board, Don Newman. He encouraged the panelists, Kevin Lynch (Vice Chair of BMO Financial Group), Peter Nicholson (former CEO of the Council of Canadian Academies), Lawson Hunter (Head of Anti-trust/Competition at law firm Stikeman Elliot) and Jim Stanford (Economist with the Canadian Auto Workers Union) to focus on identifying practical solutions to address our “productivity and innovation gap”.

The discussion was dynamic and fast-moving with questions coming from both audience members and Twitter followers.

Canada’s rate of productivity growth over the past decade has been below 1 per cent, putting us towards the bottom of the OECD pack. Far from being a new problem, the innovation and productivity gap in this country is, according to Peter Nicholson, “as old as the hills.” One reason for this is Canadian companies’ dismal record in research and development spending. But why this under-investment? There seems to be something about Canadian culture and the environment in which Canadian companies function that fails to challenge or incentivize innovation and efficiency.

And without growth in productivity – itself usually the result of innovation – we will not be able to maintain our living standards into the future.

The panelists’ views of how to solve the problem were diverse, though all agreed on the urgent need to institutionalize a culture of innovation in this country. Peter Nicholson and Lawson Hunter were keen to emphasize the potential for innovation within the public sector, especially in the delivery of health care, education and infrastructure, and in the establishment and implementation of regulation. The public sector faces particular challenges in innovating because of its effective monopoly in most areas and, more recently, because of our counterproductive obsession with accountability. If we can turn this around, the potential rewards are high.

Lawson Hunter advocated a “standards based” approach for dealing with “creeping regulation” and its negative impact on productivity and innovation. Despite apparent de-regulation, we still have a significant, and often very irrational, regulatory burden. In the absence of more objective standards against which we can judge (and appeal) such regulation, “unconstrained discretion to define what is in the public interest” will tend to add to our regulatory burden over time (or at least until costly and disruptive reviews are put in place).

“Preserving and enhancing competition and minimizing regulations that unnecessarily restrict competition” is important, Hunter said. “It’s time for the federal government to step forward to reset the regulatory agenda.”

Kevin Lynch and Jim Stanford sat at opposite sides of the stage and espoused opposing views of the best way to address the productivity problem, though not without finding some points of agreement. Lynch’s prescriptions were generally supportive of the conventional wisdom: reduce restrictions on competition, sign more trade agreements, and so forth. A point he made, forcefully, was that this does not mean that the federal government should retreat from this area. True, business innovation and productivity increases take place within the private sector, but governments at all levels need to demonstrate leadership and commitment to prioritizing innovation in the country as a whole and building a coalition of support behind this agenda.

Jim Stanford certainly supports a pronounced government leadership role in this area, but he would turn conventional wisdom on its head. Drawing on data about Canada’s relative productivity performance, he argues for the federal government to adopt a far more interventionist strategy in this area, supporting sectors, managing and regulating foreign investment and actively engaging as a “developmental state” (along the lines of Finland, Korea, China, etc.). He cited as an example of the success of such a strategy the government-brokered, and far from free-market, Auto Pact.

In Stanford’s opinion, our overarching business framework – the idea that free competitive markets deliver the most efficiency – is flawed.

There was certainly no consensus on this fact, but it did make for a lively debate, which was a key goal of the organizers of the event. And what was the biggest take away from the evening? Perhaps these perspectives aren’t mutually exclusive.

Thursday’s discussion was the second in a series that began on January 19, with a discussion about income inequality and polarization. The next Canada 2020 event on “Squaring the Carbon Circle” will take place on March 19.

With contributions from Laura Beaulne-Stuebing.

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