Innovation – time to pull
I’ve been thinking a lot about innovation lately. I’ve been talking to researchers about commercialization, talking to entrepreneurs about challenges they face in growing their companies, and have been reading a lot about what Canada must do to improve innovation.
Everyone’s got ideas about how to do it better. Unfortunately, not many of the ideas are very innovative.
Generally, these people seem to think we just need to do what we’re doing now, but more of it. Researchers are being told they need to file more patents, entrepreneurs want more early stage financing, and SMEs want more SRED tax credits.
A dog’s breakfast of funding programs already exist to address all of these areas, and they haven’t managed to fix Canada’s “innovation gap”. I’m skeptical that it is simply a question of inadequate funding for these programs.
The government seems to agree, which is why it has launched a review of all our commercial R&D programs. This represents an opportunity for a thorough rethink about how we support innovation in Canada. There is absolutely no doubt that effective funding programs are essential, and I’m sure the review panel will look at these extensively. I have many opinions on these, believe me. Today, though, I want to focus on the other end of the innovation chain.
It’s important to note that there’s only so much government can accomplish by tweaking its funding programs. Funding represents a “push” approach to innovation: here’s some money, go innovate. I think it’s equally important to look at “pull” mechanisms. For instance, Canada continues to fall in relative productivity compared to the United States. While the reasons are no doubt complex, our history of market protectionism is no doubt involved. Protectionism, especially in the natural resources sectors that constitute such a big part of our economy, means that businesses can remain profitable without needing to compete against the world’s best. Even in high tech, we protect our wireless service providers and high speed networks – resulting in needlessly high prices for consumers and SMEs, while shielding our large companies from direct competition. We protect our banks and financial services, we protect our aerospace and other strategic manufacturing industries for the short-term benefits of manufacturing jobs at the expense of manufacturing innovation.
This lack of global competition helps explain why Canadian companies invest less and less in R&D. It’s no accident that the two Canadian companies that compete most obviously on the international stage – RIM and Nortel – are at the top of Canadian R&D spenders. The government should pursue strategies that open Canadian markets to foreign competition while at the same time opening foreign markets for Canadian firms. Thus, you increase the competitive pressure on our companies while providing them competitive opportunities.
The government also fails at “pulling” innovation through its own procurement policies. Entrepreneurs will tell you that the two big challenges when starting a business are securing funding and building a customer base. Governments here focus on the former, but neglect the impact they can have on the latter. The federal government does have “buy Canadian” provisions for procurement (which, incidentally, is why many multinationals are sure to have satellite offices in Ottawa), but these are designed to support employment. Why not have “buy innovative” provisions? The government is way behind on this one – large companies have recognized that small innovative startups provide them access to new ideas and a flexibility that isn’t available in-house. As such, they are increasingly eager to work with startups and innovative SMEs. Government, on the other hand, is conservative in its approach, and makes it nearly impossible for these startups to compete for contracts, given the challenges of procurement processes. Government should make the procurement process more SME friendly, and be less conservative in its choice of providers. The government could actually put its money where its money went – support the creation of innovation and then be first in line to use it.
Innovation is complex, and if we really want to try to improve, we’ll need more than simply a splashy, politically valuable announcement of a big new approach or strategy. We’ll also need to get past the understandable self-interest of everyone involved and consider more than simply continuing or expanding this or that program. We need to look at how we reward risk-taking, we need to think about how we educate tomorrow’s potential innovators, and yes, we need to review our funding programs. I’ll have more to say about all these things in days to come.