Canada Growth Summit: Bold ideas and untapped opportunities
Released: Wednesday December 7, 2016
Key recommendations on growth from Canada’s leading thinkers, innovators and decision makers
Summary Report: November, 2016
For an overview of the report’s key recommendations, click here.
Some economists argue that slow growth in advanced economies pre-dates the 2008 financial crisis. But greater economic volatility, coupled with aging populations and declining productivity, has weakened the pace of recovery and raised concerns about the global outlook. Influential leaders such as Christine Lagarde, Managing Director of the International Monetary Fund, and Mark Carney, Governor of the Bank of England, have urged governments to look beyond monetary policy and ensure inclusive growth to counter the surge in populism and protectionism that is destabilizing Europe and the United States.
Despite weathering the last financial crisis better than most countries, Canada is not immune to declining global growth, especially as a resource nation that depends heavily on market demand. After the recent drop in commodity prices, investment has fallen across the natural resource sector, leaving projects in limbo and governments with deficits. Canada also faces many of the same demographic and productivity challenges as other G7 countries. Given all these factors, most reports forecast Canadian growth at only two percent in 2017.
Recognizing that Canada’s economy needs an urgent boost, Finance Minister Bill Morneau announced the creation of a 14-member external advisory group tasked with developing a long-term growth strategy. To provide a platform for sharing bold ideas and untapped opportunities with the Advisory Council on Economic Growth, the Public Policy Forum brought together more than 500 thinkers, innovators and decision-makers at our inaugural Growth Summit on October 12, 2016. The summit concluded with our annual Gordon Osbaldeston Lecture, this year given by Dominic Barton, Chair of the Growth Council and Global Managing Director of McKinsey & Company.
The full-day summit featured remarks on innovation from Governor General David Johnston and Tom Jenkins, Chair of Open Text and the 2010 Expert Review Panel on Research and Development, as well as one-on-one interviews with Minister Morneau, Assembly of First Nations National Chief Perry Bellegarde, and Minister of Innovation, Science and Economic Development Navdeep Bains. Panel discussions throughout the day provided diverse perspectives on the following themes:
• Policy responses to the economic slowdown
• Challenges and opportunities for emerging innovators
• Insights and strategies from mature companies
• Infrastructure as an engine for long-term growth
While slow economic growth is a global phenomenon, the summit reinforced the fact that Canada is not without options. As noted by many speakers, we need to address our weaknesses and capitalize on our strengths. We have a productivity and innovation gap relative to our competitors, but our reputation for stability and diversity continues to carry weight on the global stage. We are rich in natural resources and boast an educated population, but not all Canadians are seeing the benefits of development.
To confront the challenges ahead, our discussions highlighted four key priorities:
• Boosting Canada’s competitive edge
• Strengthening our innovation landscape
• Investing strategically in infrastructure
• Leveraging local and global talent
As the world comes to accept Brexit and prepares for a new U.S. administration, now is the time to set the conditions for long-term inclusive growth in Canada.
Defying Slow Growth: Hard Realities and Existing Levers
The global economy may be slowing, but the pace of change continues to accelerate with technological advancements across sectors. As competition tightens and uncertainty increases, Canada must overcome a number of disadvantages to ensure a prosperous future.
A common concern at the summit was the overall decline in Canada’s economic performance. With fewer global companies and lower investments in research and development, our share of global trade has inevitably shrunk. We are also losing ground on productivity, which is particularly troubling in light of demographic and infrastructure gaps. Despite signs of economic vulnerability, there remains a certain degree of complacency that may leave us trailing our global competitors.
Innovation is imperative for growth. To drive productivity, we need an environment that nurtures new ideas, as well as a mindset of continual improvement. But Canada does not have a strong culture of innovation. We lack the intensity of the U.S. and China. We also do a relatively poor job of scaling businesses. Some panelists attribute this weak competitive spirit to our natural resource wealth and social safety net. Our companies have enjoyed consistent demand for commodities until recently, and our entrepreneurs have relied on public funding that is neither competitive nor targeted.
On top of these challenges, Canada has a small economy struggling with the so-called “jobs without people and people without jobs” phenomenon. We have Indigenous communities that continue to face socio-economic barriers to economic participation, as well as legal and political obstacles to economic independence. We need more skilled immigration to mitigate population aging, but the migration process can be overly complicated, making it difficult to respond to changing labour market needs. To further compound these human capital issues, technological innovations are rapidly transforming entire industries, our workplaces and the job market.
Leaders across the country have big policy challenges ahead. We need bolder solutions to drive growth, but also inclusive approaches that benefit all Canadians. Growth Summit discussions focused on four strategic levers that Canada can maximize for long-term prosperity: trade, innovation, infrastructure and talent. First and foremost, we need to become a stronger global player by expanding trade and investment. We also have to invest strategically in innovation and infrastructure to enhance our productivity. As human capital is the backbone of every economy, we must leverage the diverse talent we have and attract the skilled talent we need to strengthen and sustain our competitive advantage.
Setting the Stage for Global Competitiveness
• Boost productivity by increasing competition through trade agreements.
• Increase growth opportunities by rethinking regulations on foreign investment.
• Promote Canada’s national brand to attract capital and increase trade.
Expand trade relations
A common theme throughout the summit was the need for Canada to step up its global presence. As noted by Dominic Barton, the share of Canadian companies at the top of their sector has dropped significantly over the past 25 years. Most leaders believe that industries need exposure to competition to continue to raise the bar for innovation and drive improvements in productivity.
Trade agreements play a critical role in opening up access to more markets at home and abroad. With economic power shifting to emerging economies, Canada may benefit from diversifying trade relations beyond North America and Europe. We can also be more strategic by capitalizing on existing strengths, such as natural resources, health care, tourism, aerospace and agriculture. To expand export opportunities, we not only need new relationships but new ways to add value across these sectors.
Attract foreign investment
Another key growth lever is investment. While Canada may have a small economy, foreign capital can help transform the country into a global trading hub. Chris Ragan, a Growth Council member and economist at McGill University, believes that “Canada has a value proposition as a location for headquarters and production that is pretty remarkable in terms of our labour market, our quality of life, our overall business environment.” Foreign investment can also create more competition in regulated sectors that are ripe for disruption and provide the necessary capital to keep up with new technologies that are reshaping entire industries.
To attract much-needed capital, Canada must rethink current regulatory frameworks that limit foreign ownership and investment. Although restrictions may help allay public concerns over foreign control, they also create barriers to private investments. Modernizing regulations on foreign direct investment will require provincial and federal policymakers to ensure accountability without undermining competition. With global capital as a top priority for the Government of Canada, Minister Bains confirmed that efforts are underway to evaluate policies and programs as well as promote Canada as country that is open for business.
Leverage Canada’s brand
A key selling point for potential investors and trading partners is reputation. In summarizing Canada’s key strengths, Tom Jenkins emphasized that we have a positive national brand and a large diaspora that can help build networks around the world. In particular, Canada is a recognized leader in education, health care and natural resources. As a tolerant society with strong public institutions, we also provide a politically and financially stable environment for investment. With growing tensions in the U.S. and Europe, the government has an opportunity to market Canada’s strengths as a competitive advantage.
Cultivating a Robust Innovation Ecosystem
• Scale businesses by ensuring access to funding throughout all stages of development.
• Support high-potential areas through selective programs and enabling mechanisms.
• Maximize public procurement as a tool for catalyzing and supporting innovation.
• Remain competitive by investing in better ways to deliver customer value.
• Invest in building clusters to enhance collaboration across sectors.
Scale innovation through targeted interventions
Innovation is the cornerstone of productivity. However, emerging innovators lack the capital to grow their business and Canada lacks the policy tools to stimulate competitive innovation. Summit speakers highlighted three key areas where focused action can start to transform the innovation landscape: addressing funding gaps, triaging support programs and utilizing public procurement.
A key issue raised throughout the summit was the difficulty of scaling high-potential start-ups in Canada. Although we have a growing community of entrepreneurs and accelerators across the country, financing that covers the entire development spectrum, from business conception to full commercialization, remains limited. For instance, the need for rigorous testing in some sectors, such as medical technology, can make scaling businesses fairly cost-intensive. Without the growth capital they need to test their products in larger markets, these start-ups often fail to become viable businesses or end up being acquired by U.S. investors before making an impact. To ensure that innovations benefit Canada, financial institutions and governments at all levels need to explore sustainable strategies for scaling enterprises across sectors.
Compared to the U.S. government, Canadian leadership takes a more hands-off approach to innovation that may not be as effective. Due to the lack of competitive programs in Canada, a common trend among Canadian entrepreneurs is ‘stacking,’ which refers to the practice of maximizing government funding rather than attracting private investment. “Don’t necessarily change the amount of funding available,” advised CEO Marty Reed of Evok Innovations, a clean tech fund. “Just allocate it to the winners” to overcome complacency and ensure impact. Similarly, other experts recommended targeted strategies for high-performing enterprises. Start-up acquisitions may not be avoidable; however, governments can play a more active role in creating the right conditions for promising innovations to grow into profitable businesses that contribute to economic growth in Canada.
To move forward with a more systematic triage approach to innovation, policymakers need to consider the entire continuum of supply and demand. It is not enough to ensure that innovations are functional; they must also provide consumer value and be user-friendly. To keep up with trends in other countries, regulation should be redefined as an innovation enabler instead of a risk management tool. Taxation is another area where creative policymaking can help accelerate innovation and enhance the business environment across the country.
As Canada is a small market, aligning procurement strategies with innovation priorities can help encourage investments in research and development. Globally recognized as a best practice in innovation policy, the Small Business Innovation Research (SBIR) program in the U.S. offers competition-based awards to stimulate technological innovation among small businesses while providing government agencies with cost-effective solutions. Another example is the Defense Advanced Research Projects Agency (DARPA), which has funded breakthrough innovations with broader applications beyond security, including the Internet and the Global Positioning System that we all take for granted today.
The success of SBIR and DARPA demonstrates that innovation is largely driven by customer demand. Public procurement practices in Canada, however, still focus narrowly on cost-effectiveness even when our competitors are seeing the value of government as a direct consumer of innovation. While research and funding are critical, governments have an opportunity to drive greater innovation in Canada by redesigning procurement based on our own needs and capacities rather than imitating existing programs. Government policies and programs also need to be balanced, as strategic interventions can lead to unintended consequences that undermine fair competition.
Sustain a culture of continuous improvement
Reinforcing the focus on creating value for customers, leaders of established companies agreed that innovation is not always about new technologies, but improving products and services across sectors. To remain successful, all companies, regardless of their age and size, need to cultivate a mindset of continuous improvement given the rapid pace of change and the high level of competition in today’s global economy. As aptly stated by Stephen Carlisle, head of GM Canada, established firms need to disrupt themselves or risk being disrupted.
An inevitable source of disruption for all sectors is technology. Increasingly affordable clean technologies are challenging the energy sector to find cleaner and cheaper methods of production to continue to attract investments and meet changing demands. The auto industry is also trying to adapt to the emergence of electric and automated vehicles as well as car and ride-sharing companies. Working within and across sectors, established companies have started to embrace collaboration to accelerate innovation. Canada’s Oil Sands Innovation Alliance (COSIA) is an example of industry players coming together to share technologies for the common purpose of enhancing environmental performance. In addition to COSIA, a new generation of industry cooperation is emerging in other sectors that are rethinking what it means to compete in today’s global economy.
Build clusters to strengthen competitiveness
All sectors have a role to play in building a vibrant innovation ecosystem where companies, big and small, are able to thrive as a result of the synergies between them. Many speakers at the summit supported a cluster approach to enhance collaboration and foster competitiveness. Faced with limited resources, governments must be more systematic in selecting key areas where Canada has the highest potential for growth. Executing such a targeted approach will require a clear vision, a strategic framework and cross-sector collaboration. Governments will also need to use their convening power to facilitate coordination among business, entrepreneurs, investors and institutions. In particular, partnerships between private companies and post-secondary institutions can be a cost-effective approach to innovation, as demonstrated by the success of Germany’s Fraunhofer model, which provides small- and medium-sized firms with access to affordable applied research.
Embracing the Long View on Infrastructure
• Create a national infrastructure bank to improve coordination and attract capital.
• Ensure successful projects by strengthening analytics, governance and capacity.
• Take a balanced approach to minimize economic risks in the clean energy transition.
Develop a national strategy
Infrastructure is another key growth lever that was repeatedly highlighted at the summit. Often used as a short-term stimulus, infrastructure investment can also contribute to medium- and long-term productivity when executed strategically. To stay competitive, countries need to invest in modernizing the foundations that support thriving cities in the 21st century, such as communication, transportation and energy systems. With Canada facing an estimated $500B infrastructure gap, many leaders agreed that now is not the time for austerity. Governments at all levels can benefit from a more coordinated approach that not only pools resources and expertise, but also ensures broader impact.
Discussions centred around the idea of creating a national infrastructure bank, which is not a new concept but one that has much potential, given the growing appetite for intergovernmental collaboration. Such an institution would serve as a central coordinating body and a centre of excellence that systematically implements a national, long-term infrastructure strategy to improve productivity across the country. The focus and stability of a centralized approach can also help attract more private capital to infrastructure projects, leaving more public funds for other priorities.
Ensure good governance
Whether the federal government establishes a national bank or adopts a different approach to infrastructure, good governance is an imperative. Jane Bird, an infrastructure expert with Bennett Jones, warned that Canada still has a long way to go in terms of improving project selection and management. Far too often, decisions on infrastructure projects are based on short-term thinking. To properly weigh costs and benefits, front-end analysis must include a careful assessment of the commercial reality and a broader consideration of long-term value. Effective management requires candid conversations about priorities and expectations among all partners, as well as strategic measures to simplify contracting practices and ensure successful completion. Although skilled talent gravitates toward good governance, both the public and private sector need to strengthen project management capacity.
Facilitate the energy transition
As energy infrastructure is critical to growth, Canada will have to carefully balance economic, environmental and social priorities. While access to affordable clean energy is the hallmark of a competitive economy, TransAlta CEO Dawn Farrell expressed concerns about the risks and uncertainties surrounding the transition to a low-carbon future. Given that renewable energy is still intermittent and heavily subsidized, industry and government will need to rethink business models and policy frameworks to develop a viable, long-term strategy that adapts to changing technologies and consumer demands.
Harnessing the Potential of Diverse Talent
• Attract and retain skilled talent by creating a more responsive immigration system.
• Expand the contributions of Indigenous peoples through education and partnerships.
• Build a competitive workforce by adopting a broader view of skills development.
Enable skilled mobility
Minister Bains stressed the need to reframe immigration as an economic policy. With the demographic shift in Canada, skilled mobility is essential to building innovation clusters and driving productivity gains. To attract and retain global talent, Canadian policymakers need to create a more agile immigration system and maximize existing channels and networks. Some of the specific recommendations include upgrading the points system to effectively target in-demand skills and streamlining processes to provide clearer pathways to temporary and permanent migration. Canada can also leverage universities to attract more international students and work with diaspora communities to promote opportunities and build bridges abroad.
Prioritize Indigenous participation
While immigration is a priority for growth, Canada’s prosperity also depends on the economic contributions of Indigenous peoples. Significant socio-economic gaps continue to exist between Indigenous and non-Indigenous Canadians. Many remote communities lack access to adequate housing, safe drinking water, as well as healthy and affordable food. As these challenges are not unique to Canada, we have an opportunity to the lead the way in fostering shared prosperity.
The federal government has made a commitment to renewing relationships with Indigenous peoples; however, the focus now must be on moving from announcement to concrete action. A top concern for Indigenous communities is improving educational outcomes, from increasing high school graduation rates to expanding post-secondary education opportunities. Another key priority is building partnerships in resource development. National Chief Bellegarde emphasized developing mutually beneficial relationships right from the start, which would require industry to invest time and effort into the process. To move toward reconciliation, all Canadians need to understand and respect the inherent right of Indigenous peoples to self-determination.
Rethink workforce development
A competitive economy requires a resilient workforce equipped with essential skills, diverse competencies and global perspectives. Expanding experiential learning opportunities can help build soft skills and better prepare students for the workforce. Although current efforts to address skills shortages are directed at increasing enrollment in science, technology, engineering and math, commercializing innovation requires a broader set of expertise that includes design, finance, as well as sales and marketing. Governor General David Johnston challenged institutions to be more ambitious, highlighting the need to build a culture of innovation through a global exchange of talent and knowledge. With demographic change and technological disruption, workforce development strategies will also need to include supports for retraining and life-long learning.
Rising to the Challenge
With governments facing increasing opposition to global trade and anxieties about new technology, Minister Morneau and other leaders emphasized that inclusion must be at the centre of Canada’s growth strategy. Unless Canadians see shared benefits from economic development, confidence in public institutions and policies will continue to wane. “It’s time that the bottom line in our country becomes our collective well-being,” noted Roberta Jamieson, President and CEO of Indspire. We need to make space for all Canadians — Indigenous peoples, women, older workers, people with disabilities — to contribute to the economy.
Inclusive growth requires bold action that is deliberate and coordinated. We have to move from generalities to concrete solutions through intergovernmental and cross-sector collaboration. We need to review existing policy and regulatory and legislative frameworks to address unnecessary barriers and unintended consequences. We also need public policy dialogue and consultation to ensure that proposed strategies are responsive to the concerns and interests of Canadians across the country.
To help governments meet this challenge, public sector innovation is critical. Just like businesses, public services will need to disrupt themselves to stay relevant. That means becoming more agile by incentivizing efficiency and experimentation. They also have to embrace long-term thinking and cross-sector perspectives to fully appreciate the diverse opportunities and potential risks ahead.