David Crane is a Canadian commentator on economic issues. His column will appear weekly.
Each year, the World Economic Forum publishes its Global Competitiveness Report, and each year Canada gets low marks for innovation. This year is no exception.
Canada ranked 14th in innovation in this year’s report, well behind countries like the U.S., Japan, Germany, Sweden or Switzerland. Overall we ranked 10th in the world in a broader definition of competitiveness, which is still fairly good. We have some positives — it is easy to start a business in Canada, we have sound banks and the quality of education is high. Last year, though, we had ranked ninth overall.
Yet if Canada is to create jobs and sustain a high standard of living, we have to become much more innovative.
This is not the only study report that gives us a mediocre grade. In a report published earlier this year by Deloitte and the Washington-based Council on Competitiveness, Canada ranked 13th in manufacturing competitiveness and predicted we would still be no higher than 13th five years from now.
The Information Technology and Innovation Foundation, another Washington think tank, ranked Canada 15th in innovation-based competitiveness, as well as ranking us 34th in terms of improvement.
We also have some good Canadian studies that tell the same story.
The 2008 report — Compete to Win — published by the Competition Policy Review Panel, expressed concern over Canada’s weak innovation performance. The panel was chaired by Red Wilson, former CEO of BCE and chair of CAE, and it called for an agenda focusing on talent, capital, innovation and what it called “an ambitious mindset.”
In the following year, the Council of Canadian Academies published its report — Innovation and Business Strategy: Why Canada Falls Short. Chaired by Bob Brown, the former CEO of Bombardier, the Expert Panel on Business Innovation warned that “too few Canadian business and entrepreneurs choose strategies that emphasize innovation.”
The World Economic Forum argues that where competitive advantage cannot be obtained from low wages or building up capabilities in manufacturing and infrastructure, progress must come from innovation.
Part of the problem, it seems, can be found in our executive boardrooms. Canada ranks 16th in business sophistication, the World Economic Forum says.
So there is a management issue. It may be that our business schools teach the wrong subjects. Too many of our companies, if they export, export only to the United States. Our companies spend much less on research and development than the leading innovation nations. Our financial system is risk averse, so that raising capital for innovation is difficult.
Moreover, we have failed to grow large Canadian-headquartered global players that can support research, development and innovation strategies. While foreign investment can strengthen the economy, many of our most promising companies merely become subsidiaries of foreign multinationals. They function as branch plants — key decisions are made elsewhere while much of our business class is only loosely connected to Canada and its priorities.
Canadians are good at starting companies and have developed many promising technologies, but then the companies are sold. Our large pools of capital may behave as passive shareholders only interested in immediate return, lacking the staying power to build for the long-term. As has been said, we grow guppies to feed the sharks.
So we need some hard rethinking on management education and on the development of financial markets and capital pools that can build large-scale Canadian-headquartered companies with the scale and scope to lead on innovation, deliver good jobs and compete all over the world. RIM, Bombardier, Magna International, McCain Foods and CAE have shown we can do it. Our future depends on it.
David Crane is a syndicated Toronto Star columnist. He can be reached at crane@interlog.com