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1、ASSESSING CANADIANINNOVATION,PRODUCTIVITY,AND COMPETITIVENESSBy Robert D.Atkinson and Lawrence ZhangAPRIL 2024innovationpolicy.ca innovationpolicy.ca Assessing Canadian Innovation,Productivity,and Competitiveness ROBERT D.ATKINSON AND LAWRENCE ZHANG|APRIL 2024 Canada faces unprecedented challenges i

2、n innovation,productivity,and competitiveness.The first step in addressing them is to develop a clear understanding of the Canadian economys underlying structure and performance in each area.Policymakers must then tailor strategies for specific industries and technologies instead of focusing on prin

3、cipally on macro factors.KEY TAKEAWAYS Canada lags peer competitors on key innovation indicators,particularly in the areas of research and development,intellectual property,and innovation outcomes.Canadas productivity performance has been dismal.For comparison,American labour productivity growth was

4、 160 percent faster than Canadas from 2002 to 2020and Americas growth in that period was actually low in historical terms.From industry to industry,Canadian labour productivity growth is quite divergent,with some sectors growing substantially and others actually declining.Canadas competitive positio

5、n in advanced industries is weak,as its global market shares have fallen dramatically over the last 25 years.It now has 42 percent less advanced-industry output as a share of its economy than the global average.Canadas crisis cannot be adequately understood or addressed by looking only at broad macr

6、o factors such as tax rates,infrastructure,and education.Policymakers must develop economic strategies focusing on firm,sector,and technology levels.ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 2 CONTENTS Key Takeaways.1 Introduction.3 Distinguishing Innovation,Productivity,an

7、d Competitiveness.4 Competitiveness.4 Innovation.6 Productivity.7 Innovation Performance.8 R&D.8 Intellectual Property.18 Higher Education.20 Labour Force.25 Technology Use.26 Fast-Growing Businesses.29 Productivity Performance.30 Competitiveness Performance.43 What To Do.52 Principle 1:Reject“Silve

8、r Bullet”Solutions.52 Principle 2:Move Beyond Ingredientism.53 Principle 3:Think Sectors and Technology,Not Markets and Economy.54 Principle 4:Look to“Productionists”for Advice on Innovation,Productivity,and Competitiveness.55 Principle 5:Focus Less on Industrial Recruitment and More on Supporting C

9、ompanies Already in Canada.55 Principle 6:The Only Way to Avoid the Gravitational Pull of the United States Is for Canada to Make Its Own.56 Principle 7:See Big and Medium-Sized Businesses as Beautiful.57 Principle 8:Embrace North American Integration,Not Separation.58 Principle 9:Reject the Precaut

10、ionary Principle and Embrace the Innovation Principle.60 Principle 10:Make Innovation,Productivity,and Competitiveness a Top Priority.60 Conclusion.61 Endnotes.62 ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 3 INTRODUCTION It has become a cottage industry in Canada to delve in

11、to the nature and causes of Canadas struggling innovation,productivity,and competitiveness(IPC)performance.While much good analysis has been conducted,at the end of the day,there is still no consensus on the extent and causes of Canadas poor IPC performance.And because of that,often reflecting a nee

12、d to identify the“silver bullet”solution,numerous conclusions and recommendations have been put forth:less regulation,more regulation(e.g.,antitrust enforcement),tighter linkages with North America,weaker linkages with North America,more education,and a change in culture,among others.Getting the ana

13、lysis and policy recommendations right is critical because the environment in which Canada finds itself is significantly more challenging than even a decade ago.First,China has become the worlds largest manufacturer and advanced industry producer,placing significant competitive pressures on Canadian

14、 firms in a host of industries.In this regard,the demise of Nortel and the concomitant rise of Huawei were just an opening salvo.Second,there has been an Organization for Economic Cooperation and Development(OECD)-wide productivity slowdown as we have waited for the maturation of the next wave of ge

15、neral-purpose technologies(artificial intelligence(AI),next-gen chips,advanced electro-mechanical systems,etc.)and their broad-scale adoption.But Canadas slowdown has been worse than that of many countries,including the United States.This stagnation poses a significant threat to Canada as an aging p

16、opulation increasingly exerts a drag on economic growth and as lower relative living standards increase outmigration of knowledge workers to America.Finally,Canada has not adequately translated spending billions at research universities and having a highly educated workforce into robust rates of dom

17、estic innovation,either through organizations adopting new technologies or companies producing and selling technology globally.As more and more technologies require a beyond-Canada scale for success,this poses new challenges for Canadian entrepreneurs and companies.Some of Canadas challenges are int

18、rinsic.Abundant natural resources are both a blessing and a curse(a blessing because the wages in the sector are so high and a curse because their exports lead to a relatively higher value of the loonie).Canadas proximity to the U.S.market provides opportunities to Canadian companies,but it also is

19、a“black hole”gravitational pull that attracts Canadian talent,intellectual property(IP),and companies.Moreover,Canadas foreign branch plant firms,built behind a 100-year tariff wall,create industrial capability that might not otherwise have emerged,but that also means limited research and developmen

20、t(R&D)and exports.1 But other Canadian challenges can be overcome,provided Canadians want to overcome them.More could be done to encourage universities to play a stronger role in supporting private sector innovation.The SR&ED tax credit could be redesigned to be a spur to R&D increases.2 Canadian po

21、licymakers could stop looking to Europe as a regulatory model for emerging technologies and instead look to the United States for ways to grow a globally vibrant technology economy.More could be done to create a Canadian single market,rather than a market of 10 provinces.Ottawa could adopt a robust,

22、sectoral-based productivity strategy.And more could be done to place IPC renewal at the centre of Canadian politics,for all the political parties.ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 4 This reportthe first of the Information Technology and Innovation Foundations(ITIFs)

23、Canadian Centre for Innovation and Competitivenessexamines these issues.But it first clarifies the key differences between the three concepts of IPCterms that are commonly confused in Canadian policy discourse.It then presents data on Canadian IPC,comparing performance with the United States and six

24、 other comparator nations(Australia,China,Germany,South Korea,Poland,and the United Kingdom).Finally,it lays out the following ten overarching principles we believe should guide future IPC policy efforts:1.Reject“silver bullet”solutions.2.Move beyond the idea that national economies can succeed by f

25、ocusing on basiceconomic ingredients.3.Think in terms of specific industries and technologies,not markets and the overalleconomy.4.Look to“productionists”for advice on IPC.5.Focus less on industrial recruitment and more on supporting companies already inCanada.6.The only way to avoid the gravitation

26、al pull of the United States is to make our own.7.See big and medium-sized businesses as beautiful.8.Embrace North American integration,not separation.9.Reject the precautionary principle and embrace the innovation principle.10.Make IPC a top priority.DISTINGUISHING INNOVATION,PRODUCTIVITY,AND COMPE

27、TITIVENESS To listen to many pundits,economists,and policymakers discussing the economics of growth,it would be easy to get confused about exactly what is meant by three of the most commonly used terms“innovation,”“productivity”and“competitiveness”and“Are they synonymous?Conflicting?Unrelated?”In fa

28、ct,while the three terms are related,they are clearly distinct and refer to different things.Competitiveness It is quite common for organizations and pundits to define“competitiveness”as“productivity.”Harvards Michael Porter has stated,“The only meaningful concept of competitiveness at the national

29、level is productivity.”3 The World Economic Forums Global Competitiveness Report agrees,defining competitiveness as“the set of institutions,policies,and factors that determine the level of productivity of a country.”4 IMDs World Competitiveness Yearbook defines it even more broadly as how an“economy

30、 manages the totality of its resources and competencies to increase the prosperity of its population.”5 IMD includes virtually all factors related to economic performance,including youth employment levels,level of inflation,and real gross domestic product(GDP)growth.But if everything is competitiven

31、ess,then in practice nothing is.In fact,competitiveness is narrower than productivity.To see why,its important to differentiate between traded and nontraded industries.A traded industry is one that sells a significant share ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 5 of its

32、 output outside a particular geographical area.For example,a printing firm in Ontario that sells printed material to customers across Canada would be a traded firm from the perspective of the Ontario economy,but a nontraded firm from the perspective of the Canadian.In contrast,a software firm in Mon

33、treal that sells software throughout the world would be a traded firm from the provincial and national perspective.Competitiveness is the ability of a nation to have a robust traded sector economy relative to imports while maintaining favourable“terms of trade”when the real price of exports is adjus

34、ted to reflect all“sales discounts”(including an artificially low currency,suppressed wages in export sectors,artificially low taxes on traded firms,and direct subsidies to exporters)and import restrictions.Under this definition,a nation may run a large trade surplus(one component of competitiveness

35、).However,if it does so by providing large discounts to its exports or limits imports,it would not be truly competitive,for such policies would reduce its terms of trade by requiring its residents to give up some of their income to foreign buyers or force them to pay higher prices to domestic produc

36、ers.Unfortunately,while data exists on trade balances for virtually all nations,data on the extent of export discounts and import restrictions is difficult to obtain.As such,it is hard to identify which countries are truly competitive,although at a quick glance,it would appear that nations such as A

37、ustria,Germany,and Sweden would be on the list(they run trade surpluses while also having relatively high wages),while nations such as China(too much discounting)and the United States(too large a trade deficit)would not be listed.However,Canada appears to be relatively competitive with trade balance

38、s close to zero.6 But this reflects,in significant part,a fall in the value of the Canadian dollar,especially relative to the U.S.dollar,which makes imports more expensive and exports cheaper.7 Competitiveness is the ability of a nation to have a robust traded sector economy relative to imports whil

39、e maintaining favourable“terms of trade”when the real price of exports is adjusted to reflect all“sales discounts”and import restrictions.But even that definition of competitiveness is too narrow because it does not differentiate between comparative advantage and competitive advantage.Of course,Cana

40、da has a comparative advantage in minerals,agriculture,and timber,and it runs trade surpluses in all of these,including$29 billion in minerals in 2023.8 Not to take away anything from the companies and workers in these industries,but this was a comparative advantage that was bestowed upon rather tha

41、n earned by Canada.What really matters when assessing competitiveness is the performance of a nation in non-natural-resource-based sectors,especially technologically advanced,high-value sectors.It is in these sectors that employment multipliers and wages are usually very high.As we discuss in the se

42、ction on Canadian competitiveness,these sectors include computers and semiconductors,motor vehicles,aerospace,and machinery and software,where Canadian competitiveness is quite low.To be sure,productivity growth can help competitivenessespecially if it is concentrated in traded sectors,which lowers

43、their costs and enables them to sell more in global markets without discounts.But productivity growth can also be relatively unrelated to competitiveness if it is ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 6 concentrated in non-traded sectors.Imagine a nation with strong pro

44、ductivity growth but almost all of it in nontraded sectors such as grocery stores,electric utilities,and nursing homes.Certainly,incomes would go up as relative prices in these sectors fall,but firms in traded sectors would only see modest reductions in their costs to the extent they purchase inputs

45、 from nontraded firms.Innovation While the term competitiveness is usually incorrectly defined,innovation is usually defined more accurately,although all too often too narrowly.Many see innovation as only technological in nature,resulting in shiny new products such as Apples iPad or Boeings 787 Drea

46、mliner.Still others believe innovation pertains only to the R&D activity going on at universities,national laboratories,and start-ups.While this is all true,it is much too limiting in scope.The OECD properly defines innovation more broadly as“a new or improved product or process(or combination there

47、of)that differs significantly from the units previous products or processes and that has been made available to potential users(product)or brought into use by the unit(process).”.”9 However,even when it is properly defined,many equate innovation with competitiveness,productivity,or both.For example,

48、Bloombergs ranking of the 50 most innovative nations includes productivity as one of its seven variables.Likewise,the Canadian Council of Academies has written,“Given the potential of IR&D industrial R&D to boost economic growth,its relatively low intensity can help explain Canadas persistent produc

49、tivity gap with the United States.”10 In his testimony to Parliament,former Blackberry CEO Jim Balsillie stated,“When you start to do that get more IP from R&D,you get leverage,which drives whats called productivity or GDP per capita.Thats how these other economies get more wealth per worker and how

50、 to put more money in the average Canadians pocket.”11 Innovation can increase productivity and competitiveness,but it is not synonymous with either.But while innovation is related to competitiveness and productivity,it is not synonymous with them.For example,the innovation of the smart electric gri

51、d will help boost the productivity of the electric industry but will not have a direct impact on competitiveness because electric utility services are not typically traded across borders.Likewise,the development of a new technology to better predict weather patterns might benefit quality of life,but

52、 it would also not directly affect productivity.In contrast,the creation of a new drug,a new kind of airplane,or a faster computer chip would not only enhance traded sector industries competitiveness(pharmaceuticals,aerospace,and semiconductors),but also improve quality of life.Thus,certainly innova

53、tion can increase productivity and competitiveness,but it is not synonymous with either.Given the fact that advanced industries globally account for around 12 percent of GDP,the locomotive power of R&D in these firms to drive growth is,by definition,limited.Moreover,innovation can be easily purchase

54、d from firms around the world.Canadian hospitals can buy the latest Swiss scanning machines,and insurance companies can buy Japanese AI software.ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 7 Productivity Productivity is perhaps the most straightforward and easily defined of t

55、he three factors.Productivity is output per unit of input.The unit of input can be labour hours(labour productivity)or all production factors including labour,machines,and energy(total factor of productivity).Despite this simplicity,many still confuse the use of the term.For example,some have argued

56、 that moving jobs to China raises productivity because doing so lowers costs.But while this might reduce prices,it is actually likely to decrease output per unit of input since firms in Chinese use fewer machines and are less efficiently organized.Economies have three ways to grow over the medium an

57、d longer term:growth in workers,growth in productivity across the board,or a shift to high-productivity industries.The first,growth in the number of workers,is a nonsustainable strategy and,more importantly,does nothing to increase per capita income growth.The second,the“growth effect,”occurs when a

58、 nations productivity goes up not by some high-productivity industry sectors getting bigger,but rather by all sectors getting more productive.For example,a countrys retail,banking,and automobile manufacturing sectors can all increase their productivity at the same time.This can happen if all the fir

59、ms increase their productivity,or if the low-productivity firms in a particular industry lose market share to high-productivity firms in the same industry(e.g.,small bookstores go out of business because consumers prefer to buy e-books online).This process occurs in all sectors.One study of Canadian

60、 manufacturing finds that plant turnover from entry and exit contributes from 15 to 25 percent of manufacturing-labour productivity growth,with the other 75 to 85 percent coming from individual plants continuing to become more productive.The third,the“shift effect,”occurs when the mix of low-and hig

61、h-productivity industries in a nation changes.For example,if a developing nation loses 500 agricultural jobs(which,in developing nations,normally have low productivity)and gains 500 jobs in a software firm(which normally have higher productivity),overall national productivity would increase.The lion

62、s share of productivity growth in most nations comes not from changing the sectoral mix to higher-productivity industries,but rather from all industries boosting their productivity.But which productivity strategyacross-the-board growth or the shift effectis the best path to higher productivity?The a

63、nswer depends in large part on the size of an economy and to a lesser degree on the type of sector.The larger the economy,the more important the growth effect is since relatively less of large-economy output is traded.Moreover,the more local-serving the sector is,the more important the growth effect

64、 is.To understand why,consider an automobile factory in a small city.If its managers install a new computer-aided manufacturing system and raise the plants productivity(the growth effect),a large share of the benefits will flow to the firms customers around the nation and even around the world in th

65、e form of lower prices.The city will benefit only to the extent that its residents buy cars from that factory or if some of the increases in productivity go to higher wages instead of only to lower prices.In general,the lions share of productivity growth in most nations comes not from changing the s

66、ectoral mix to higher-productivity industries,but rather from all industries,even low-productivity ones,boosting their productivity.ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 8 INNOVATION PERFORMANCE Innovation cannot be captured in a single measure,though it is frequently s

67、hrunk down to rankings,indexes,and scorecards to make it easier to digest.However,such reductionism can make it harder for policymakers to gain more complete understanding of where exactly Canadas weaknesses in innovation are.While it may be helpful in gaining an overall understanding of the global

68、innovation ecosystem to hear that Canada ranks 15th on the Global Innovation Index,or that it gets a“C”letter grade on its scientific articles,these do not indicate exact issues for improvement,only general areas.12 Moreover,none of the major national innovation indexes provide effective assessments

69、 of countries innovation performance.Our goal is not to provide a comprehensive list of indicators for every aspect of Canadas innovation ecosystem,but to point out specific measures that highlight Canadas performance,both good and bad.As such,to best provide an informative overview of Canadas innov

70、ation performance,we explore a number of different indicators from a range of statistical bodies and international agencies.R&D As a key component of innovation,R&D is regularly homed in on when discussing Canadas innovation performanceand rightfully so,as countries with high levels of R&D are frequ

71、ently high-performance economies whose firms gain the ability to capitalize upon this knowledge creation.Based on the following indicators,Canada lags behind many of its peers and comparator countries in spending on R&D,with a virtually flat level of spending on R&D across the economy over time in f

72、igure 1,compared with moderate to high levels of growth across many other countries.Canada has seen particularly poor performance in business expenditures on R&D,with firms drastically underspending on R&D investments compared with other countries even after adjusting for GDP as well as firm size.Ca

73、nadas higher-education R&D expenditure is higher than that of the comparator countries,although this only accounts for a small portion of gross R&D expenditures in Canada and with other countries.Finally,Canadas government expenditure on R&D falls behind other countries,and increasing this could be

74、an area of opportunity for the federal government to spur Canadian innovation in targeted industries.ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 9 Figure 1:Gross expenditure on R&D as a percentage of GDP13 Figure 2 decomposes overall R&D expenditure into its three components:

75、business expenditure on R&D(BERD);higher-education expenditure on R&D(HERD),and government expenditure on R&D(GOVERD).This illustrates how significantly the R&D gap between Canada and other advanced economies is derived from business R&D.Though Canada leads in higher-education R&D spending and trail

76、s quite far behind in government R&D spending,the overall makeup of R&D across countries shows that even significant government investment in public sector R&D is unlikely to address Canadas low level of overall R&D.0%1%2%3%4%5%6%201120132015201720192021KoreaUnited StatesGermanyUnited KingdomChinaCa

77、nadaAustraliaPolandITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 10 Figure 2:R&D composition as a percentage of GDP(2021)14 Figure 2 shows that Canada is essentially tied for last with Australia and Poland among the comparator countries in business spending on R&D.Meanwhile,bus

78、iness R&D in other countries has increased significantly in the past 10 years.In its current trajectory,it appears that Poland will likely surpass Canada in the near future.Though Canadas absolute levels of business investment in R&D are higher than Polands due to the size disparity between the two

79、economies,Polands overall GDP continues to significantly rise year over year,faster than Canadas rate of growth.0%1%2%3%4%5%6%PolandCanadaAustraliaChinaUnitedKingdomGermanyUnitedStatesKoreaGOVERDHERDBERDITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 11 Figure 3:Business expendit

80、ure on R&D as a percentage of GDP15 Canadian firms made up just 28 of the top 2,500 firms on the“2022 EU Industrial R&D Investment Scoreboard,”which lists the firms that invest the most in R&D around the world.Canada again falls behind many of the comparator countries,with Canada below all but Austr

81、alia and Poland when comparing top R&D companies after adjusting for size of economy.(See figure 4.)Figure 4:Companies in the top 2,500 global R&D investors per trillions of dollars of purchasing power parity(PPP)GDP(2022)16 0%1%1%2%2%3%3%4%4%5%201120132015201720192021KoreaUnited StatesGermanyUnited

82、 KingdomChinaCanadaAustraliaPoland051015202530354045United StatesUnited KingdomChinaGermanyKoreaCanadaAustraliaPolandITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 12 While U.S.GDP was approximately 11 times greater than Canadas,the number of firms on the R&D 2,500 list was 30 t

83、imes higher.(See table 1.)Table 1:Number of firms in nine advanced trade sectors(2021)17 Sector United States Canada Rest of the World Total Pharmaceuticals and Biotechnology 263 6 209 478 Software and Computer Services 197 6 134 337 Technology Hardware and Equipment 71 3 133 207 Electronic and Elec

84、trical Equipment 41 2 206 249 Industrial Engineering 28 1 138 167 Automobiles and Parts 28 2 118 148 Aerospace and Defence 15 2 27 44 General Industrials 15 0 49 64 Alternative Energy 2 0 6 8 Total 660 22 1,020 1,702 The average U.S.firm on the R&D 2,500 list invested$802 million in R&D,0.06 standar

85、d deviations above the global average firms R&D spending of$656 million in the above sectors.18 In comparison,the average Canadian firm invested just$234 million in R&D,0.18 standard deviations below the global average.19 Collectively,U.S.firms in these sectors invest more in R&D than do Canadian fi

86、rms.In 2021,U.S.firms spent almost 103 times more than Canadian firms:$529 billion on R&D,while Canadian firms spent$5.2 billion,despite U.S.GDP being just 11.7 times greater than Canadas.20 As a result,U.S.firms global R&D share was 47.4 percent compared with Canadian firms 0.5 percent.21(See figur

87、e 5.)This is compared with the rest of the worlds 52.1 percent.22 Even when controlling for GDP,U.S.firms still spent more than Canadian firms.For every$1,000 of GDP,U.S.firms in these nine sectors invested$22.70 on private R&D,while Canadian firms invested$2.59.23 The rest of the worlds firms inves

88、ted$8.17.24 Certainly,industrial structure accounts for a major portion of Canadas poor R&D performanceCanada will not have hundreds of pharmaceuticals and biotechnology companies on the R&D 2,500 list if there are not that many firms in that sector in the first place.As noted by Canadian economist

89、and scientist Peter Nicholson,the“largest companies according to financial metrics belong to traditional economic sectors,dominated by finance(banking and insurance)and resources(primarily energy).Only two of the current top 25 companies by market value are in ITIF CENTRE FOR CANADIAN INNOVATION&COM

90、PETITIVENESS|APRIL 2024 PAGE 13 information technology(Shopify and Constellation Software)and only one manufacturer(Magna)makes the top 25 in revenue.”25 Figure 5:Share of global R&D of top 2,500 R&D spenders(2021)U.S.firms size-adjusted R&D spending was larger than Canadian firms in 2021.The size-a

91、djusted R&D spending compares U.S.and Canadian firms R&D spending as a share of the respective countries GDPs to the global average R&D spending as a share of the worlds GDP.This results in an industry concentration ratio known as an LQ,which we express as a multiple.For example,if a country has twi

92、ce the global average corporate R&D in a given sector,then its LQ in that sector is 2.The LQ is important in this analysis because it compares the performance of firms in each country with the global average after adjusting for the size of each countrys economy.By that measure,U.S.firms size-adjuste

93、d R&D spending was higher than Canadas in all nine industries.(See table 2.)Table 2:Business R&D relative to the global average in nine advanced sectors,2021(manufacturing in italics)26 Sector U.S.Firms LQ Canadian Firms LQ Aerospace and Defense 1.79x 0.45x Software and Computer Services 3.14x 0.41x

94、 Automobiles and Parts 0.67x 0.27x$529.3B$5.2B$581.6B$0$5$10$15$20$25$300%20%40%60%80%100%R&D per$1,000 GDPShare of Global R&DITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 14 Sector U.S.Firms LQ Canadian Firms LQ Pharmaceuticals and Biotechnology 2.18x 0.18x Technology Hardware

95、 and Equipment 2.20 x 0.09x Industrial Engineering 0.84x 0.09x Electronic and Electrical Equipment 0.50 x 0.06x General Industrials 1.13x 0.00 x Alternative Energy 0.47x 0.00 x All Advanced Industries 1.96x 0.22x As for foreign funding of R&D,Statistics Canada data from 2021 shows that roughly$7.7 b

96、illion,or 39 percent of business enterprise R&D,was funded by foreign business enterprises(which includes Canadian subsidiaries of non-Canadian companies).27 Meanwhile,data from the U.S.National Center for Science and Engineering Statistics reveals that U.S.companies invested$8.3 billion in R&D in C

97、anada,accounting for 66,000 jobs.28 Roughly$3 billion of this was in the information sector,which includes software and AI jobs,and 95 percent of the total U.S.investment in Canadian R&D was in large companies.The difference between the data from Statistics Canada and the U.S.National Center for Sci

98、ence and Engineering Statistics could potentially be explained by differences in definitions of country of control,though both data sources make it clear that a significant portion of Canadian R&D is funded by foreign-controlled companies.Canadas poor performance in business R&D,in part,can be attri

99、buted to the lack of scale seen in Canadian firms.Canadas poor performance in business R&D can partially be attributed to the lack of scale seen in Canadian firms.The Scientific Research&Experimental Development incentive program and overall corporate tax regime heavily favour small to medium-sized

100、firms,thereby disincentivizing Canadian firms from reaching the size necessary to take advantage of returns to scale on R&D.29 Figure 6 shows the latest Statistics Canada data on the breakdown of Canadian business expenditure on R&D by industry.Perhaps unsurprisingly,industries that rely more heavil

101、y on technological progress as a means of gaining a competitive market share,such as computer systems and transportation equipment,are more likely to invest more in R&D than other industries.ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 15 Figure 6:Top 15 Canadian R&D industrie

102、s30 As noted,Canada has one of the highest rates of investment in R&D by the higher-education/postsecondary sector.It has long been almost double the rate at which the United States and Korea spend,as seen in figure 7,though that leaves the question of what the Canadian production system gets for it

103、.Canadas relative performance in university technology commercialization and start-ups should be much higher than it is compared with other nations,given this level of funding.Yet,in the absence of a robust technology transfer system and ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024

104、 PAGE 16 pathways to commercialization,R&D from the higher education sector is unable to provide significant economic benefits to firms and the broader economy in the same way that business R&D can.Simply having the“ingredient”of R&D performed at universities is not adequate to grow a globally compe

105、titive technology economy.Figure 7:Higher-education expenditures on R&D as a percentage of GDP31 In the absence of a robust technology transfer system and pathways to commercialization,R&D from the higher education sector is unable to provide significant economic benefits in the same way that busine

106、ss R&D can.Figure 8 shows that Canada has a fairly middle-of-the-pack level of higher education R&D funded by the business sector,especially compared with countries such as German and Korea,which have established sophisticated programs to link businesses and research universities.This shows that Can

107、adas lackluster performance in converting college and university-derived inventions into tangible,commercially viable innovations is not necessarily an issue with a lack of private sector funding for higher-education R&D,but rather what comes after.0.0%0.1%0.2%0.3%0.4%0.5%0.6%0.7%0.8%201120132015201

108、720192021United KingdomCanadaAustraliaGermanyPolandKoreaUnited StatesChinaITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 17 Figure 8:Percentage of higher-education R&D financed by the business sector(2019)32 Government R&D expenditures,though fairly small in most countries,have

109、can be a significant driving force for a nations innovation by taking on financial risks that even de-risked private sector investment through government subsidy is unlikely to undertake.This is especially true if the R&D is aligned with industry specialization,as it tends to be in Germany and Korea

110、.Investment from the U.S.Department of the Defense created ARPANET,the precursor for the modern Internet,that has allowed American companies to flourish in the 21st century at a scale and pace that otherwise would have been unlikely.33 Meanwhile,public sector funding through Canadas National Researc

111、h Council played a vital role in the creation of canola oil and the electric pacemaker,which have had major long-lasting impacts on the health and well-being of Canadians as well as people around the world.34 Figure 9 shows that Canada has been significantly underinvesting in government R&D relative

112、 to other countries,and this funding continues to be on a downward trajectory as well.If Canada wanted to achieve the same level of government expenditure of R&D as a share of GDP as the United States,it would have to increase its government R&D spending by 144 percent,or$3.1 billion.0%5%10%15%20%25

113、%30%ChinaKoreaGermanyUnited KingdomCanadaAustraliaUnited StatesPolandITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 18 Figure 9:Government expenditure on R&D as a percentage of GDP35 Intellectual Property The World Intellectual Property Organization ranks Canada 13th in the worl

114、d by total patenting activity.However,Canada is near the bottom alongside Australia and Poland when looking at the number of international patent applications adjusted for economy size.(See figure 10.)Meanwhile,Korea and China have been significantly increasing the number of patent applications year

115、 over year,roughly doubling their annual applications between 2011 and 2020.Figure 10:Patent cooperation treaty patent applications per billion PPP$GDP 36 0.0%0.1%0.2%0.3%0.4%0.5%0.6%201120132015201720192021KoreaGermanyChinaUnited StatesAustraliaUnited KingdomCanadaPoland0123456789201120132015201720

116、19KoreaGermanyUnited StatesChinaUnited KingdomCanadaAustraliaPolandITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 19 However,simply registering patents does not create economic prosperity.One measure of IP value is the amount of IP licensing revenue obtained from foreign firms.H

117、owever,Canadas balance of payments on IP receipts is negative,and it imports more than twice the amount of IP it exports,while the United States is functionally the inverse,exporting more than twice the amount of IP it imports.Figure 11 shows that IP does not make up a significant portion of Canadas

118、 overall exports,though it beats out both Australias and Koreas.Figure 11:IP exports as a percentage of total trade(2021)37 Table 3 shows the types of technologies,and therefore sectors,that obtain the most patents.Canadas top categories do not differ significantly from that of the comparator countr

119、ies,meaning that Canadian firms face steep competition in their respective patenting-intensive industries.It should be noted that these technologies are all in industries wherein firms are more likely to seek patents,and not necessarily ones that are more broadly innovative.0%1%2%3%4%5%United States

120、PolandChinaUnited KingdomGermanyCanadaKoreaAustraliaITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 20 Table 3:Top patent grants as a share of all patents,by technology(2023)38 Canada Australia China Germany Medical technology 8%Medical technology 12%Computer technology 13%Transp

121、ort 20%Pharmaceuticals 8%Pharmaceuticals 11%Measurement 7%Mechanical elements 10%Civil engineering 7%Biotechnology 7%Digital communication 7%Electrical machinery,apparatus,energy 9%Biotechnology 5%Computer technology 6%Electrical machinery,apparatus,energy 6%Engines,pumps,turbines 8%Measurement 5%Ci

122、vil engineering 5%Machine tools 4%Measurement 7%Korea Poland United Kingdom United States Computer technology 9%Measurement 7%Civil engineering 11%Computer technology 16%Semiconductors 7%Civil engineering 7%Computer technology 10%Digital communication 9%Electrical machinery,apparatus,energy 7%Other

123、special machines 6%Medical technology 6%Medical technology 6%Medical technology 5%Basic materials chemistry 5%Measurement 6%Electrical machinery,apparatus,energy 6%Digital communication 4%Organic fine chemistry 5%Electrical machinery,apparatus,energy 6%Semiconductors 5%Higher Education As with highe

124、r-education expenditure on R&D,Canada performs better than many comparator countries on most measures of innovation in the postsecondary sector and academia.For instance,Canadian universities are ranked among the highest in the world in virtually all published online rankings,including the QS Rankin

125、g published annually.(See figure 12.)Figure 13 shows that Canadians are the most educated population in the world when comparing people ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 21 between the ages of 25 and 64 who possess a degree from a university or college.It is strikin

126、g that this advantage has not been effectively translated into strong IPC performance.Figure 12:Average QS ranking of top three universities(2023)39 Figure 13:Share of age 2564 population with a university or college degree(2022)40 020406080100United StatesUnited KingdomChinaAustraliaCanadaKoreaGerm

127、anyPoland0%10%20%30%40%50%60%CanadaKoreaAustraliaUnited StatesUnited KingdomGermanyChinaPolandITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 22 Canada also ranks highly in attainment of science,technology,engineering,and math(STEM)undergraduate degrees as well,lagging behind Chi

128、na,Germany,and Korea among the comparator countries.Figure 14:STEM undergraduate degrees awarded as a percentage of total undergraduate degrees41 Canada also publishes a relatively high number of academic journal articles,as seen in figure 15.However,its not enough to just publish articles,even high

129、ly cited ones.Knowledge that is relevant to industry needs to be produced and transferred.Using the H-Index,a metric used to measure the number of published papers combined with the number of times authors are cited,Figure 16 shows that Canadian authors are cited at noticeably a lower rate than scho

130、lars from Germany,the United Kingdom,and the United States.0%5%10%15%20%25%30%35%40%45%ChinaGermanyKoreaCanadaUnited KingdomUnited StatesAustraliaPolandITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 23 Figure 15:Scientific and technical journal articles per billion PPP$GDP(2022)

131、42 Its not enough to just publish articles,even highly cited ones.Knowledge that is relevant to industry needs to be produced and transferred.Figure 16:H-Index of publications(2022)43 Figure 17 shows that,on average,American university technology transfer offices supported patent applications at alm

132、ost twice the rate that Canadian ones did in 2012,and that disparity grew to three times in the ensuing decade.051015202530354045AustraliaUnited KingdomCanadaKoreaChinaPolandGermanyUnited States0500100015002000250030003500United StatesUnited KingdomGermanyCanadaAustraliaChinaKoreaPolandITIF CENTRE F

133、OR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 24 Figure 17:University tech transfer office new patent applications44 It is not clear from figure 18 whether the U.S.average amount of full-time equivalent(FTE)positions at technology transfer offices has increased due to increased activity,or

134、whether the increased activity has encouraged these institutions to hire additional staff to better service the demand.However,it is clear that American institutions increased the number of FTEs between 2012 and 2022,while Canadian institutions remained relatively static in the amount of personnel s

135、upport for innovation commercialization at the postsecondary and research institution level.Figure 18:University tech transfer office licensing FTEs45 010203040506070809020122022Canadian AverageU.S.Average4.855.25.45.65.866.26.420122022Canadian AverageU.S.AverageITIF CENTRE FOR CANADIAN INNOVATION&C

136、OMPETITIVENESS|APRIL 2024 PAGE 25 Labour Force Though this is not a study on the labour market or trends in skills,the composition of the labour force is nevertheless important when discussing Canadas innovation potential.From the two following measures and Canadas overall high-level of postsecondar

137、y education and STEM degree attainment,Canadas labour force appears to be well placed to take advantage of the innovation economy and the digital and advanced skills that it will require.However,whether the Canadian economy sufficiently capitalizes on the appropriate skills and workforce composition

138、 is an entirely separate question.Figure 19 shows that Canada has a relatively average number of business enterprise researchers(adjusted for national labour force),which could indicate that the absolute business enterprise expenditure on R&D per researcher is lower than that of many other countries

139、.Figure 19:Business enterprise researchers per thousand labour force(2017)46 One measure of an economys ability to create new jobs in a burgeoning field is annual growth rate of AI jobs(figure 20).Canada ranks highest,and this portends real opportunities for the Canadian economy,especially if it can

140、 continue to support AI research and not put in place a regulatory system that limits AI innovation and use.The number of AI jobs in Canada is growing at a faster rate than any other country.024681012KoreaUnited StatesGermanyCanadaUnited KingdomPolandAustraliaChinaITIF CENTRE FOR CANADIAN INNOVATION

141、&COMPETITIVENESS|APRIL 2024 PAGE 26 Figure 20:Annual growth rate of proportion of people with AI-related jobs47 The number of AI jobs in Canada is growing at a faster rate than any other country.Technology Use Innovative businesses both develop and use the results of innovation namely technology,to

142、succeed against their peers.Canadian businesses appear to be performing well in relation to the comparator countries on technology usage and adoption.Figure 21 examines the rate at which businesses are adopting information technology tools across the economy.It does so by averaging the rates in whic

143、h businesses are using tools such as social media,websites,cloud computing,e-commerce,and customer relations management software,among others.Canada performs well compared with the comparator countries,with the main source of Canadas and Australias advantages being the higher percentage of businesse

144、s that use social media and cloud computing.10%15%20%25%30%35%40%45%50%201720182019202020212022CanadaUnited StatesUnited KingdomAustraliaGermanyPolandKoreaITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 27 Figure 21:Business information technology(IT)adoption(2019)48 Many innovat

145、ion-intensive industries are no longer as heavily dependent on capital investment in fixed assets,such as real estate,machinery,and equipment.As such,software spending is one way to look at the innovation input of firm-level investments in industries such as information technology,professional servi

146、ces,and finance.Canada spends the third most in the world on software amongst comparator countries,indicating that firm-level investments into software do not appear to be the major culprit behind Canadas perennial corporate investment gap.0%10%20%30%40%50%60%70%AustraliaCanadaGermanyKoreaPolandUnit

147、ed KingdomITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 28 Figure 22:Software spending as a percentage of GDP(2022)49 AI tools have the potential to significantly increase productivity at the firm level,though businesses must be both willing and able to utilize them.Similar to

148、figure 20,figure 23 also serves as a proxy to see how well businesses are adapting to brand new innovations.Canada is deploying AI at roughly the same rate as most of the comparator countries,apart from China.Figure 23:Percentages of businesses that deployed AI(2022)50 0.0%0.2%0.4%0.6%0.8%1.0%1.2%Un

149、ited StatesUnited KingdomCanadaGermanyChinaPolandKoreaAustralia0%10%20%30%40%50%60%70%ChinaGermanyCanadaUnited KingdomUnited StatesAustraliaKoreaPolandITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 29 Fast-Growing Businesses Venture capital plays a crucial role in the innovation

150、 economy,providing funding for start-ups to grow their innovations into businesses.They provide the necessary resources for funding R&D,product development,and market expansion activities that most early-stage businesses do not possess,and also assist in the creation of a competitive environment whe

151、rein business models are evaluated early on.Canadas venture capital investment exceeds most other countries but is much lower than U.S.funding.Figure 24:Venture capital investment as a percentage of GDP51 The existence of unicorns,or start-ups with a valuation worth over$1 billion,shows a countrys a

152、bility to scale a company through the various stages of its innovation ecosystem as well as general investor confidence in a countrys innovation potential.As seen in figure 25,Canada appears to have a relatively mediocre measure of unicorn valuations,about one third the rate of the United States.Thi

153、s reflects Canadas longstanding scale-up issue.0.0%0.2%0.4%0.6%0.8%1.0%1.2%20132015201720192021United StatesCanadaKoreaUnited KingdomGermanyPolandITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 30 Figure 25:Unicorn valuations as a percentage of GDP(2022)52 PRODUCTIVITY PERFORMANC

154、E As is widely understood,Canadas productivity performance(output per worker hour)has been dismal.This can be seen by comparing Canadian labour productivity growth with the United States.From 1982 to 2002,U.S.growth was 51 percent faster than Canadas.From 2002 to 2022,American growth was an astoundi

155、ng 160 percent faster.(See figure 26.)While both economies growth rates fell in the latter period,Americas decline was just 26 percent,while Canadas was 47 percent.0%1%2%3%4%5%6%7%8%9%United StatesUnited KingdomChinaAustraliaCanadaGermanyKoreaPolandITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS

156、|APRIL 2024 PAGE 31 Figure 26:United States and Canadian labour productivity growth rate from 1982 to 2002 and 2002 to 202253 Figure 27 provides the same data for every year,with both countries productivity indexed to 2017.As shown,the United States grew faster for both periods,although from 2010 to

157、 around 2016,Canadas growth kept pace,only to fall off again after that.Figure 27:United States and Canadian labour productivity compared to base year 201754 When comparing against the benchmark nations,we can see that Canadas performance is at the lower end of the ranking.(China is excluded because

158、 its productivity was so high:162 percent and 99 percent).From 2002 to 2012,Canada ranked last in productivity growth,about half the U.S.rate,and one-sixth the rate in Poland and South Korea.(See figure 28.)From 2012 to 0%10%20%30%40%50%60%1982200220022022CanadaUnited States-60%-50%-40%-30%-20%-10%0

159、%10%20%19821986199019941998200220062010201420182022United StatesCanadaITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 32 2023,Canadas relative performance was somewhat better,ranking third last,ahead of the United Kingdom and Germany.(See figure 29.)Figure 28:Labour productivity,

160、percentage growth,2002201255 Figure 29:Labour productivity,percentage growth,2012202356 0%5%10%15%20%25%30%35%CanadaGermanyUnitedKingdomAustraliaUnitedStatesKoreaPoland0%5%10%15%20%25%30%35%GermanyUnitedKingdomCanadaAustraliaUnitedStatesKoreaPolandITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|

161、APRIL 2024 PAGE 33 When looking at individual Canadian industries at the 3-digit industry level,what is most striking is the significant divergence in labour productivity growth from 2011 to 2021.Many of the top performers were in retail and wholesale trade(e.g.,miscellaneous store retailers,nonstor

162、e retailers,furniture stores,sporting goods),where the Internet and e-commerce may have played a key role.Other industries that were information or IT-based(other information services,telecommunications,publishing,and broadcasting)also saw reasonable gains.Twenty-one of 78 industries saw declines,so

163、me of which,such as air transportation,motion pictures,and couriers,were potentially related to COVID-based economic contraction.Finally,only 5 of 19 manufacturing sectors saw more than 2 percent annual productivity gains over the 10 years,a very low rate,especially when looking at historical Canadi

164、an manufacturing performance.Without stronger performance,it will be difficult for them to compete internationally.Table 4:Labour productivity growth from 2011 to 2022 by industry(manufacturing in italics)57 Industry%Change Personal and household goods wholesaler-distributors 81%Miscellaneous store

165、retailers 77%Crop production 71%Clothing and clothing accessories stores 71%Animal production 62%Sporting goods,hobby,book and music stores 58%Non-store retailers 54%Provincial and territorial government services 52%Oil and gas extraction 50%Accommodation services 46%Other information services 44%Ra

166、il transportation 39%Publishing industries(except Internet)39%Telecommunications 35%Lessors of non-financial intangible assets(except copyrighted works)34%Building material and garden equipment and supplies dealers 34%Miscellaneous manufacturing 33%Non-metallic mineral product manufacturing 32%Priva

167、te households 32%Rental and leasing services 29%ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 34 Miscellaneous wholesaler-distributors 28%Computer and electronic product manufacturing 25%Petroleum and coal product manufacturing 25%Furniture and related product manufacturing 25%

168、Insurance carriers and related activities 23%Furniture and home furnishings stores 22%Repair and maintenance 21%Motor vehicle and parts wholesaler-distributors 21%Health and personal care stores 20%Wood product manufacturing 20%Plastics and rubber products manufacturing 20%Pipeline transportation 19

169、%Data processing,hosting,and related services 17%Machinery manufacturing 17%Machinery,equipment and supplies wholesaler-distributors 16%Chemical manufacturing 15%General merchandise stores 15%Farm product wholesaler-distributors 13%Electronics and appliance stores 13%Food manufacturing 12%Primary me

170、tal manufacturing 12%Broadcasting(except Internet)12%Nursing and residential care facilities 11%Support activities for agriculture and forestry 9%Support activities for mining and oil and gas extraction 9%Food,beverage and tobacco wholesaler-distributors 8%Motor vehicle and parts dealers 8%Amusement

171、,gambling and recreation industries 7%Government educational services 7%ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 35 Gasoline stations 5%Real estate 4%Water transportation 4%Federal government services 4%Printing and related support activities 3%Fabricated metal product man

172、ufacturing 3%Food and beverage stores 2%Monetary authorities-central bank 2%Electrical equipment,appliance and component manufacturing 1%Personal and laundry services 1%Administrative and support services 0%Truck transportation-1%Food services and drinking places-1%Building material and supplies who

173、lesaler-distributors-4%Petroleum product wholesaler-distributors-6%Warehousing and storage-6%Social assistance-6%Paper manufacturing-7%Waste management and remediation services-10%Support activities for transportation-11%Forestry and logging-12%Ambulatory health care services-14%Transportation equip

174、ment manufacturing-15%Wholesale electronic markets,and agents and brokers-17%Mining and quarrying(except oil and gas)-18%Fishing,hunting and trapping-19%Government health services-21%Postal service-23%Beverage and tobacco product manufacturing-23%ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|A

175、PRIL 2024 PAGE 36 Motion picture and sound recording industries-28%Couriers and messengers-35%Air transportation-37%Only 5 of 19 manufacturing sectors saw more than 2 percent annual productivity gains from 2011 to 2021,a very low rate.The lagging rates of productivity growth in Canada are one reason

176、 why Canada ranks behind the United States,Germany,the United Kingdom,and Australia.At continued rates of productivity growth,both Poland and Korea should lead Canada by the end of the decade.Figure 30:GDP per hour worked in 2022(constant prices,2015 PPPs)58$0$10$20$30$40$50$60$70$80KoreaPolandCanad

177、aAustraliaUnitedKingdomGermanyUnitedStatesITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 37 At continued rates of productivity growth,both Poland and Korea should lead Canada by the end of the decade.There are many explanations for Canadas lagging productivity performance,but in

178、 our view most are speculation at best(among the best work on this is from the Canadian Centre for the Study of Living Standards).59 The purpose of this report is not to lay out a productivity strategy for Canada.However,it is clear that one reason for lagging productivity performance is lagging inv

179、estment in new capital equipment(machinery,equipment,software,computers,etc.).One source of data for international comparison comes from OECD whose measure includes machinery and equipment and weapons systems spending.60 In 2020,Korea led the comparator nations,investing 9 percent of GDP.Only the Un

180、ited Kingdom was lower than Canada.Figure 31:Machinery,equipment,and weapons systems share of GDP in 2020 One reason for lagging productivity performance is lagging investment in new capital equipment.In terms of trends,investment has generally been falling as a share of GDP,in part perhaps because

181、the cost of computing has fallen,and that makes up a considerable share of machinery costs.As a share of GDP,from 2005 to 2020,only Australia saw larger declines in investment than did Canada.0%1%2%3%4%5%6%7%8%9%10%UnitedKingdomCanadaAustraliaUnitedStatesGermanyPolandKoreaITIF CENTRE FOR CANADIAN IN

182、NOVATION&COMPETITIVENESS|APRIL 2024 PAGE 38 Figure 32:Machinery and equipment and weapon system share of GDP percentage point change,20052020 Within Canada,machinery and equipment expenditures as a share of total consumption expenditures peaked in the mid-2000s at around 6.2 percent and have since f

183、allen to almost 4 percent in 2023.Figure 33:Machinery and equipment as a share of final consumption expenditures,2002202361 Canadas performance in IP products is similar but somewhat better,peaking in the mid-2000s and falling slightly by 2023.62-5%-4%-3%-2%-1%0%AustraliaCanadaUnitedStatesGermanyUni

184、tedKingdomPolandKorea0%1%2%3%4%5%6%7%20022004200620082010201220142016201820202022ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 39 Figure 34:IP products as a share of final consumption expenditures,2002202363 These downward trends in investment reflect dramatic differences betwe

185、en industries,as table 5 and table 6 show.For example,according to government data,machinery and equipment investments by finance and insurance fell 78 percent over the last two decades,while mining and quarrying(except oil and gas)increased 328 percent.We see similarly wide disparities in the growt

186、h of IP products investment over the same period.Table 5:Machinery and equipment investment percentage change from 2002 to 202264 Industry%Change Other Indigenous government services 5,280%Holding companies 1,472%Educational services 483%Mining and quarrying(except oil and gas)328%Support activities

187、 for agriculture and forestry 275%Defence services 245%Administrative and support,waste management and remediation services 215%Primary metal manufacturing 192%Health care and social assistance 187%Construction 164%Other municipal government services 162%Nursing and residential care facilities 152%G

188、overnment sector 128%Miscellaneous manufacturing 115%0%1%1%2%2%3%3%4%20022004200620082010201220142016201820202022ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 40 Industry%Change Wood product manufacturing 108%Wholesale trade 106%Other provincial and territorial government servi

189、ces 99%Forestry and logging 90%Utilities 89%Other federal government services 89%Professional,scientific and technical services 89%Crop production 86%Hospitals 81%Accommodation and food services 81%Arts,entertainment and recreation 65%Chemical manufacturing 65%Transportation equipment manufacturing

190、64%Fishing,hunting and trapping 64%Beverage and tobacco products manufacturing 60%Machinery manufacturing 54%Fabricated metal product manufacturing 48%Agriculture,forestry,fishing and hunting 42%Transportation and warehousing 42%Food manufacturing 41%Total all industries 40%Manufacturing 40%Informat

191、ion and cultural industries 40%Other services(except public administration)35%Non-profit institutions serving households 27%Support activities for mining and oil and gas extraction 19%Electrical equipment,appliance and component manufacturing 16%Mining,quarrying and oil and gas extraction 15%Retail

192、trade 14%Real estate and rental and leasing 13%Plastics and rubber products manufacturing 9%Conventional oil and gas extraction 5%Non-metallic mineral product manufacturing-3%Paper manufacturing-6%Furniture and related product manufacturing-9%ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL

193、 2024 PAGE 41 Industry%Change Petroleum and coal products manufacturing-11%Animal production-24%Finance,insurance,real estate,rental and leasing-34%Non-conventional oil extraction-36%Computer and electronic product manufacturing-46%Textile and textile product mills-56%Printing and related support ac

194、tivities-57%Clothing and leather and allied product manufacturing-75%Finance and insurance-78%Table 6:IP products percentage change from 2002 to 202265 Industry%Change Nursing and residential care facilities 6,900%Educational services 852%Administrative and support,waste management and remediation s

195、ervices 520%Construction 433%Finance and insurance 348%Holding companies 319%Transportation and warehousing 286%Furniture and related product manufacturing 285%Support activities for mining and oil and gas extraction 283%Mining and quarrying(except oil and gas)248%Retail trade 214%Accommodation and

196、food services 189%Crop production 178%Wholesale trade 166%Professional,scientific and technical services 166%Health care and social assistance 155%Fishing,hunting and trapping 150%Finance,insurance,real estate,rental and leasing 148%Printing and related support activities 133%Food manufacturing 131%

197、Other municipal government services 127%Support activities for agriculture and forestry 115%ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 42 Industry%Change Utilities 112%Arts,entertainment and recreation 110%Hospitals 105%Defence services 100%Non-profit institutions serving ho

198、useholds 98%Agriculture,forestry,fishing and hunting 90%Information and cultural industries 89%Miscellaneous manufacturing 83%Other federal government services 58%Total all industries 56%Government sector 50%Beverage and tobacco products manufacturing 48%Other services(except public administration)4

199、2%Electrical equipment,appliance and component manufacturing 38%Wood product manufacturing 37%Fabricated metal product manufacturing 24%Clothing and leather and allied product manufacturing 18%Animal production 15%Other provincial and territorial government services 13%Forestry and logging 7%Non-con

200、ventional oil extraction 5%Plastics and rubber products manufacturing 1%Machinery manufacturing-1%Primary metal manufacturing-2%Manufacturing-17%Chemical manufacturing-21%Mining,quarrying and oil and gas extraction-27%Transportation equipment manufacturing-30%Petroleum and coal products manufacturin

201、g-32%Non-metallic mineral product manufacturing-38%Computer and electronic product manufacturing-44%Real estate and rental and leasing-54%Textile and textile product mills-59%Paper manufacturing-71%Conventional oil and gas extraction-77%ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024

202、PAGE 43 Robotics adoption is increasingly a key to boosting productivity.Figure 35 shows that Canada uses significantly fewer industrial robots per manufacturing worker than the comparator countries that were included in the International Federation of Robotics data.Given the fact that Canadas top m

203、anufacturing industries,like transportation equipment,chemicals,and fabricated metals,are all generally considered to be robotics-intensive relative to other manufacturing industries,Canadas low use of robotics cannot simply be blamed on industrial composition.66 Canadian businesses chronically unde

204、rinvest in new capital equipment relative to the other comparator countries,and robots is just one indicator.Canadas low level of robot installation compared to China and Korea is particularly striking becase Canadian manufactguring wages are higher,which increases the return on investment of invest

205、ing in robots.Figure 35:Industrial robots per 10,000 manufacturing workers(2022)67 COMPETITIVENESS PERFORMANCE To assess Canadas competitiveness performance,we examined changes in global shares of value-added output in 10 advanced industry sectors that are largely traded across national borders:phar

206、maceuticals;electrical equipment;machinery and equipment;motor vehicle equipment;other transport equipment;computer,electronic,and optical products;information technology and information services;chemicals(not including pharmaceuticals);basic metals;and fabricated metals.To conduct this analysis,we

207、use production data from OECDs dataset on trade in value added,covering the period from 1995 through 2020(the last year of data availability).68 To assess Canadas relative performance in these industries,we used an analytical statistic known as a location quotient(LQ),which measures a regions level

208、of industrial specialization relative to a larger geographic unitin this case,a nation relative to the rest of the world.The LQ is calculated as an industrys share of the economy divided by the global industrys share of the global economy.An LQ greater than 1 means the countrys share of global outpu

209、t in an industry is greater than the global average;and an LQ less than 1 means a countrys share is less than the 02004006008001,0001,200KoreaGermanyChinaUnited StatesCanadaITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 44 global average.Using these indicators,it is clear that n

210、ot only has Canada consistently underperformed relative to the world,but it has lost ground.In the late 1990s,largely because of motor vehicles,Canada was about as concentrated in these advanced industries as the rest of the world.But its share sank dramatically in the 2000s,largely because of the“C

211、hina shock”of China joining the World Trade Organization(WTO)and becoming the manufacturing workshop of the world.However,after the 2010s,its specialization in these industries largely stabilized,in part because of growth in the IT and information services sector.(See figure 36.)Figure 36:Hamilton I

212、ndex industries shares of Canadas economy Not only has Canada consistently underperformed relative to the world,but it has lost ground.Figure 37 shows LQs for the sum of all 10 industries in 2020 for 40 countries.Countries with a blue bar graph have above-average production of these industries.Count

213、ries with orange graphs are below.It is striking that Canadas LQ is 0.58(almost half the global average).That puts Canada behind all OECD countries except Australia and Norway,and behind developing nations such as Mexico,Vietnam,and Argentinaand of course,China.Global Index,11.8%Canadas Index,6.9%0%

214、2%4%6%8%10%12%14%199520002005201020152020Electrical EquipmentPharmaceuticalsMachinery and EquipmentComputers and ElectronicsMotor VehiclesOther TransportationFabricated MetalsChemicalsIT and Information ServicesBasic MetalsITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 45 Figure

215、 37:Relative national performance in the composite Hamilton Index(2020 LQ)Canadas relative performance compared with these other nations is also weak.From 1995 to 2020,Canadas LQ fell 0.31 points,with only South Africa seeing a worse decline.Contrast that with Taiwan and Korea,whose LQs grew by even

216、 more than did Canadas decline.(See figure 39.)However,as noted,Canadas decline relative to the rest of the world slowed after 2008,with its LQ falling 0.05 points.(See figure 41.)2.101.771.671.471.471.391.211.161.151.141.091.071.071.060.960.930.920.880.870.850.850.830.830.760.690.670.640.630.590.58

217、0.570.570.470.470.460.450.440.410.290.12TaiwanKoreaSingaporeSwitzerlandChinaGermanyJapanIsraelSwedenMalaysiaAustriaThailandIndiaPhilippinesDenmarkBelgiumItalyMexicoUnited StatesPolandNetherlandsTurkeyVietnamRussiaFranceUnited KingdomBrazilSpainArgentinaCanadaSouth AfricaIndonesiaEgyptSaudi ArabiaAus

218、traliaBangladeshNorwayPakistanNigeriaHong KongOver-performingUnderperformingITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 46 When comparing with the seven benchmark countries,Canada also performs poorly.Only Australia has a lower LQ.(See figure 38.)The leaders are Korea(built l

219、argely on its computer and electronics industry),China(with leadership in electronics,steel,mechanical equipment,chemicals,and computers),and Germany(with leadership in chemicals,motor vehicles,and machinery and equipment).Figure 38:2020 advanced industry location quotients However,when it comes to

220、change in LQ from 1995 to 2000,Canadas performance was the worst,with its LQ falling from 0.89 to 0.58.In contrast,Poland(emerging from under the thumb of communist rule)and Korea(a robust“Asian Tiger”),saw the highest gains.(See figure 39.)Figure 39:Percentage change in advanced industry concentrat

221、ion from 1995 to 202069 00.511.52KoreaChinaGermanyUnited StatesPolandUnited KingdomCanadaAustralia-40%-30%-20%-10%0%10%20%30%40%CanadaAustraliaUnitedKingdomUnitedStatesChinaGermanyKoreaPolandITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 47 Figure 40:Change in relative national

222、performance in the composite Hamilton Index(LQ difference,19952020)0.380.340.240.240.230.220.180.170.160.140.130.120.110.100.070.070.050.020.01-0.01-0.03-0.07-0.07-0.08-0.09-0.09-0.10-0.11-0.11-0.12-0.12-0.13-0.14-0.17-0.20-0.21-0.22-0.24-0.31-0.41TaiwanKoreaSwitzerlandRussiaAustriaDenmarkPolandIsra

223、elNigeriaSaudi ArabiaGermanyPhilippinesVietnamThailandNetherlandsMexicoChinaItalyIndiaSingaporeBangladeshHong KongMalaysiaUnited StatesSpainJapanSwedenArgentinaBelgiumBrazilEgyptNorwayFranceTurkeyUnited KingdomAustraliaIndonesiaPakistanCanadaSouth AfricaImprovingRegressingITIF CENTRE FOR CANADIAN IN

224、NOVATION&COMPETITIVENESS|APRIL 2024 PAGE 48 Figure 41:Change in relative national performance in the composite Hamilton Index(LQ difference,20082020)In terms of relative industry strength,Canada is above average in only one:other transportation,where Canadas LQ is 1.21,presumably based on the streng

225、th of airplane manufacturer Bombardier.(See figure 42.)Canadas second strongest industry,relative to the rest of the world,0.170.130.120.110.090.080.080.050.020.00-0.01-0.01-0.03-0.04-0.05-0.05-0.05-0.06-0.07-0.07-0.07-0.08-0.08-0.09-0.10-0.11-0.12-0.12-0.12-0.13-0.15-0.16-0.16-0.19-0.20-0.22-0.25-0

226、.29-0.31-0.33TaiwanDenmarkSaudi ArabiaPolandMexicoTurkeyNigeriaRussiaUnited StatesItalyNetherlandsHong KongBelgiumAustriaUnited KingdomSwitzerlandCanadaIsraelSpainVietnamAustraliaFranceSingaporeIndiaPhilippinesEgyptNorwayBangladeshThailandMalaysiaKoreaPakistanGermanySwedenArgentinaIndonesiaSouth Afr

227、icaJapanBrazilChinaImprovingRegressingITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 49 is IT and information services,where its LQ is almost 1(0.99).This is likely because of the strength of its universities and related start-ups and major investments by U.S.IT and information

228、services companies in Canada.In contrast,Canada is below average in all other advanced industries.Electrical equipment and computer and electronics are the worst-performing industries,with LQs of only 0.26 and 0.20,respectively.Figure 42:Canadas relative historical performance in Hamilton industries

229、(LQ Trends)Moreover,as seen in figure 41,the story of Canadas competitiveness decline is motor vehicles,which peaked at an LQ of around 2.4 in 1999 and plummeted to around 0.8 in 2008.But this is a problem the United States also faces,with its motor vehicle LQ being even lower as of 2020,at 0.57.(Se

230、e figure 43.)Overall,the U.S.auto industry is quite weak compared with European and Asian producers.Moreover,a significant share of North American production has moved to Mexico,which has the highest LQ in motor vehicles of any country in the world at 3.14.In 2008,Canada accounted for 1.9 percent of

231、 the worlds motor vehicle output.By 2020,that fell to 1.2 percent.In the same period,Canadas LQ in motor vehicles declined from 0.80 to 0.62.(See figure 44.)In contrast,Mexico went from 2.8 percent global market share to 4 percent,while the United States went from 11.6 to 14 percent.From the early 2

232、000s until 2020,the LQs for all the industries except other transportation and IT and other information services declined.Other transportation is Canadas only industry that has been both strong and improving since 2008.IT and information services and chemicals are the only two industries that are we

233、aker than the global average but have been improving since 2008.The remainder of Canadas industries are both weak and declining:basic metals,motor vehicles,computers and electronics,electrical equipment,machinery and equipment,fabricated metals,and pharmaceuticals.0.00.51.01.52.02.519952000200520102

234、0152020Other TransportationIT and Information ServicesFabricated MetalsMotor VehiclesComposite Hamilton IndexChemicalsBasic MetalsPharmaceuticalsElectrical EquipmentComputers and ElectronicsITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 50 Figure 43:Relative performance in motor

235、 vehicles(2020 LQ)3.142.761.831.741.741.691.561.411.321.181.071.060.940.930.910.890.820.750.700.660.650.620.620.580.570.520.470.460.420.370.160.160.110.090.090.080.060.040.040.03MexicoGermanyKoreaThailandSwedenJapanPhilippinesChinaPolandTurkeySouth AfricaIndonesiaIndiaSpainAustriaBrazilTaiwanMalaysi

236、aUnited KingdomItalyVietnamArgentinaCanadaBangladeshUnited StatesPakistanRussiaBelgiumFranceNetherlandsAustraliaEgyptIsraelDenmarkSwitzerlandSaudi ArabiaNorwayNigeriaSingaporeHong KongOver-performingUnderperformingITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 51 Figure 44:Net c

237、hange in relative performance in motor vehicles,20082020(LQ difference)1.350.360.280.260.230.210.190.150.130.130.130.100.090.080.080.070.040.030.030.020.010.00-0.01-0.02-0.02-0.03-0.06-0.07-0.07-0.10-0.14-0.18-0.19-0.23-0.25-0.25-0.28-0.37-0.42-0.83MexicoPhilippinesTurkeyThailandMalaysiaPolandVietna

238、mUnited KingdomSpainRussiaTaiwanGermanySwedenUnited StatesNetherlandsIndiaItalySouth AfricaSaudi ArabiaNigeriaIsraelHong KongNorwaySingaporeSwitzerlandDenmarkEgyptBangladeshAustriaAustraliaKoreaCanadaPakistanJapanArgentinaFranceBelgiumIndonesiaChinaBrazilImprovingRegressingITIF CENTRE FOR CANADIAN I

239、NNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 52 One final note on Canadian competitiveness.In the 20th century,it was easier for Canada to build competitive global companies than it is now,largely because Asian competition,and Chinese in particular,was much less challenging then.The United States lost

240、a number of leading companies and industries to Asia,and in particular to China(e.g.,telecom equipment and solar panels).But it still retained many leading companies as well as enabled the creation of an array of new advanced technology companies that have become world leaders.Canada has lost many o

241、f its leading firms in the last 40 years or so,including Massey Fergusen,Stelco,Nortel,and Blackberry.And its not clear how Bombardier will fare,especially with foreign ownership and China likely to get into the same market.70 The reality is,should Canadian entrepreneurs today seek to build up simil

242、ar companies today,the global headwinds will be much stronger.This is not cause for despair;rather,it is to point out the reality of the nature of todays competition,and why Canada needs to double down on growing globally competitive advanced industry companies.Should Canadian entrepreneurs today se

243、ek to build up similar companies today,the global headwinds will be much stronger.WHAT TO DO It is beyond the scope of this report to lay out a detailed agenda for Canadian IPC.However,we do offer nine principles to guide policy.Principle 1:Reject“Silver Bullet”Solutions It is heartening that the is

244、sue of Canadas declining IPC has been getting significant attention in Canadian public discourse.Unfortunately,too much of that discourse is focused on advancing single causes and silver bullet solutions.A good example is antitrust,where much of the narrative now holds tougher antitrust enforcement

245、as the key to Canadian renewal.For example,The Globe and Mail editorial board has written that Canada should eliminate its efficiencies defense(which would make it easier to merge if companies boosted productivity)on the grounds that this change wouldget readyboost productivity!71 In examining why C

246、anadian businesses are so reluctant to invest and innovate,the Centre for Productivity and Prosperity blamed lack of internal competition.72 Yet,the last time the Canadian government released data on change in industry concentration ratios was around 2008,though this lack of evidence does not stop a

247、dvocates from claiming that the competition sky is falling.If Canada ran the same surplus as the United States does as a share of GDP,the increase to Canadian income would equal just 3 percent of Canadian GDP,hardly enough to move the needle on productivity.Another popular explanation for weak produ

248、ctivity growth is weak IP ownership.Perhaps the most prominent proponent of this view is former Blackberry CEO Jim Balsillie,who critiqued recent comments by Carolyn Rogers,senior deputy governor,Bank of Canada,about Canadas productivity crisis:“What we actually need is complex,robust industrial str

249、ategies that lead us from idea creation,idea retention and then the selling of that idea globally through a domestically headquartered firm.”73 ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 53 But even if Canada were a global leader in IP,that would do little for Canadian produ

250、ctivity,as Canada runs a trade deficit in IP payments.If Canada ran the same surplus as the United States does as a share of GDP,the increase to Canadian income would equal just 3 percent of Canadian GDP,hardly enough to move the needle on productivity.74 The last time the Canadian government releas

251、ed data on change in industry concentration ratios was around 2008,though this lack of evidence does not stop advocates from claiming that the competition sky is falling.Other popular explanations include a cultural resistance to innovation,too little help for small business,too many lower-skilled i

252、mmigrants,too much regulation,high taxes,too little investment in the green transition,and more.75 While all these issues may have validity,neither simple explanations nor silver bullet solutions serve Canada well,and lead to policymakers missing the bigger picture.Other explanations,such as lack of

253、 both R&D spending and capital investment in machinery,are not really explanations;they are symptoms.In part,silver bullet thinking reflects a lack of adequate analysis that identifies true causes of Canadian firms lagging IPC performance.Principle 2:Move Beyond Ingredientism “Ingredientism”refers t

254、o the belief that a nation can succeed in IPC principally by having robust quantities of the right ingredients.These can include effective trade agreements,good universities,the rule of law,educated workers,good broadband,etc.If ingredients were all that mattered,Canada would be one of the top innov

255、ation economies in the world.Indeed,for years,Canada ranked among the leaders in various innovation indexes that were based on ingredients.One recent study compares a number of leading countries,including Canada and the United States,to determine the relationship between increases in graduation rate

256、s in higher education and transformation to a more tech-based economy.It finds that Canada is alone among the nations where an increase in skilled workers does not support technological change in the economy,and“that skilled workers were allocated mainly to the Skilled Non-Market Services”(e.g.,heal

257、th care,higher education,government,etc.).76 In fact,the coefficient for high-tech industry in Canada is negative,meaning more education is associated with less private sector high-tech industry,whereas in other nations,it is positive.More ingredients in Canada no longer do the job.If ingredients we

258、re all that mattered,Canada would be one of the top innovation economies in the world.Moreover,its not just the quantity of the ingredients,its having the right ingredients.You cant bake a raisin pie with apples;you need raisins.In this sense,policies focused on ingredients,especially education and

259、research,need to ensure that they are producing the ingredients that are needed by Canadian business,especially in advanced industries.In addition,ingredients have to be high quality.A cake with really good flour is better than one with mediocre flour.At least in the United States,the quality of col

260、lege graduates appears to be lacking.In a study of ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 54 second-semester seniors of four-year colleges,just 38 percent,40 percent,and 34 percent were proficient in prose,document,and quantitative literacy,respectively.77 One study of O

261、ntario universities finds that there is no statistically significant improvement in critical thinking skills between entry and graduation.78 Its pretty easy to graduate more students,even in STEM.It is vastly harder to hold universities and professors accountable for ensuring that their students are

262、 highly skilled.Related to this,Canadian governments should drive education reform to focus more on capabilities(e.g.,thinking,writing,analysis and logic,quantitative analysis)and less on things(learning facts).But just as one cannot bake a cake without the right ingredients,one also cannot do so wi

263、thout a good stove,utensils,recipe,and cook.Ingredients are not enough to build technology hubs,start-ups,and high-productivity firms.As such,Canadian IPC policy needs to focus much more on institutions than on ingredients.To take one example,Canadian universities get a significant amount of federal

264、 funding.But what are they actually doing with it?Is their research aligned with Canadian industry needs?Are their policies and programs providing real incentives for the commercialization of technology within Canada?Do provincial governments reward or penalize universities based on their contributi

265、on to Canadian tech commercialization?Its time to move beyond ingredients to recipes.Principle 3:Think Sectors and Technology,Not Markets and Economy In Canda and other Commonwealth countries(and the United States),neoclassical economists call the shots,declaring what is appropriate to even be consi

266、dered.And their focus is almost exclusively on price-mediated national economies,wherein innovation is seen as exogenous from the model.But this simplistic modeling of innovation and the innovation economy causes policy to go off the rails.Canadian economists Richard Lipsey and Kenneth Carlaw have d

267、one yeomens work to debunk the conventional economics view in favour of an innovation economics view.79 Others have done similar work.80 One key insight from innovation economics is that policy needs to be viewed through the lens of organizations,industries,and technologies.For example,Canadas produ

268、ctivity crisis cannot be adequately understood or even addressed by simply looking at broad macro factors,such as tax rates,infrastructure,and education.It has to be examined at the sector and firm levels.This is something William Lewis,former head of McKinsey Global Institute,showed so well in his

269、landmark book The Power of Productivity.Policy needs to be viewed through the lens of organizations,industries,and technologies.Neoclassical economics assumes that all industries are alike in that they all seek to,and can effectively maximize,productivity,arguing that sectoral productivity policies

270、are not needed because all industries respond adequately to market forces.In fact,productivity policy cannot be fully effective unless it is grounded in a sophisticated understanding that industries differ significantly with regard to their productivity dynamics.Sectoral productivity strategies are

271、about analyzing how opportunities and constraints regarding productivity differ by industry and understanding what policy can do to improve the productivity of all industries.An effective national productivity policy needs to be based on an analysis of individual industries and,when appropriate,broa

272、der production systems.Industries include firms in the same ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 55 industry.Systems are broader and go beyond any particular industry.For example,the construction industry involves firms that actually build things.But the construction s

273、ystem is broader,including providers of materials inputs(e.g.,sawmills),designers(e.g.,architects),and builders(e.g.,carpenters,welders,etc.)and even building owners.Economies are composed of a wide array of systems,including transportation systems,information systems,transaction systems,health syst

274、ems,and others.Embracing this view would mean that a Canadian national productivity strategy would seek to understand why some sectors have above average productivity while others lag behind.It would attempt to determine where key sectors are in terms of adopting global best-in-class productivity pr

275、actices relative to these same sectors in other nations.As business economist Don Drummond wrote,“Canada is not alone in having shifted gears on framework policies quite radically without reaping all the expected benefits.Something seemed to be missing from the policy paradigm.”81 He went on to note

276、 that a“research agenda with a focus on firm behavior from a micro approach is needed to obtain a deeper understanding of Canadas terrible productivity record and to develop actions to boost productivity growth.”82 Mainstream economists study the overall economy and markets and prices,but they dont

277、really study the process by which entrepreneurs,firms,and industries use technology to boost IPC.As such,they are not best positioned to provide the kind of advice needed to solve Canadas IPC problems.Principle 4:Look to“Productionists”for Advice on Innovation,Productivity,and Competitiveness Relate

278、d to the need to focus on sectors and technology is the need to rely less on the discipline of economics.Mainstream economists study the overall economy and markets and prices,but they dont really study the process by which entrepreneurs,firms,and industries use technology to boost IPC.As such,they

279、are not best positioned to provide the kind of advice needed to solve Canadas IPC problems.Its like going to cardiologist when the persons problem is cancer.Its time for Canada to look to“productionists”for analysis and guidance:analysts who have a deep understanding of firm,industry,and technology

280、dynamics.One reason Anglo-American economies,including the United States,have lagged behind in building advanced industry economies is that industry policy is largely shaped by the discipline of economicsand in this case,neoclassical economics that eschews more sophisticated roles for government in

281、driving industrial competitiveness,productivity,and innovation.Many other countries and regions,such as Scandinavia,Israel,Korea,Singapore,and Taiwan,rely more on productionists and technologists for guidance.Canada needs to the do the same.Economists still need to play a key role in overall macroec

282、onomic policy,but solving the IPC crisis requires new disciplines to be at the table.Principle 5:Focus Less on Industrial Recruitment and More on Supporting Companies Already in Canada In many ways,Canadas national competitiveness and innovation strategy mirrors that of some American states,especial

283、ly less innovative southern states that have long relied on industrial recruitment to grow their economies.Rather than work to boost homegrown,high-growth entrepreneurship and domestic innovation,they spend enormous resources,including financial,ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|AP

284、RIL 2024 PAGE 56 on“incentivizing”multinational corporations to build factories in their states.This appears to be a core of Canadas growth strategy,too.Canada used to use tariffs to incentivize branch-plant investment;now it uses subsidies.There are three problems with this strategy,whether at the

285、provincial level or the national level.First,it is enormously expensive,diverting funding that could go to other“build from within”initiatives such as the Canada Innovation Corporation.Second,many of the firms selected are not building on existing Canadian innovation strengths and agglomerations,the

286、refor the positive spillovers to other Canadian firms and supply chains can be limited.Third,these firms are often branch-plant firms that simply produce rather than innovate,at least until their products are made obsolete by technological change or the corporate headquarters gets a better deal from

287、 another government to a branch plant somewhere else.In many ways,Canadas national competitiveness and innovation strategy mirrors that of some American states,especially less innovative southern states that have long relied on industrial recruitment to grow their economies.To be fair,it is easy to

288、default to this strategy because it can provide immediate success in the form of ribbon-cutting ceremonies that government officials can stage to show they are creating jobs.A domestic innovation strategy is likely to pay greater longer-term dividends,however.As such,Canadian IPC policy should be mo

289、re focused on helping firms in Canada,regardless of where they are headquartered,become more competitive,productive,and innovative.Principle 6:The Only Way to Avoid the Gravitational Pull of the United States Is for Canada to Make Its Own Canadas next-door neighbor,the worlds largest economy with th

290、e most vibrant technology hubs,has long acted as a magnet for Canadian talent,IP,and start-ups.It is often easier to grow a technology company to scale in an American tech hub such as Boston or Silicon Valley than it is in Canada.While overarching innovation policies and frameworks in Canada can hel

291、p reduce the gravitational pull balance,they wont offset it.Canada needs to build up its own“black hole”gravitational hubs.ITIF wrote in 2019,regarding the United States,that“far from diffusing,the advanced tech sector has been concentrating in a short list of superstar metropolitan areas.”83 And th

292、is is because“substantial evidence now suggests that the agglomeration of firms brings with it strong self-reinforcing tendencies that not only inhibit the spread of development,but are likely to exacerbate its concentration.”84 The same pull from U.S.tech hubs has been exerted on the Canadian econo

293、my.In response to ITIFs proposal,Congress established a regional technology hub program to fund up to 20 metropolitan areas that already possess strong assets but need help to become self-sustaining growth poles.While,realistically,the United States has 8 to 10 places,at best,that could achieve that

294、 status,Canada has,at best,three or four.That means Canadas innovation strategy should seek to build up innovation assets in a few key regions.This is not to say that other policies supporting sectoral innovation in tourism,agriculture,mining,and other industries are not useful.It is to say that wit

295、hout these kinds of world-class hubs,Canada will struggle in the technology economy.Of course,regional politics make such a ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 57 concentration strategy difficult,as all regions rightly want advanced industry development,as some have a

296、rgued regarding the Global Innovation Clusters program launched by the Government of Canada in 2017.85 But that doesnt make it any less necessary.It is important to note that its not just Canada that loses technology to national U.S.hubs;many U.S.states do as well.Media headlines often point out tha

297、t roughly one in four Canadian science,technology,engineering,and math graduates frequently move to the United States after having received four years of publicly funded Canadian postsecondary education.86 But less than 25 percent of computer science majors that graduate from a Michigan university a

298、re working in Michigan in five years after their degree and over one-third are working on the U.S.West Coast.87 As such,this is not so much a Canada versus United States issue as it is a heartland versus tech hub issue,with the tech hubs being located in the United States.If one looks at several key

299、 innovation economy indicators and compares Canada with the United States without several key U.S.states that are tech hubs(California,D.C.and Maryland,New York,Massachusetts,and Washington),Canada still lags behind on patents per worker(63 percent of the U.S.rate)and venture capital per GDP(55 perc

300、ent),but it leads the United States in R&D expenditures per GDP(17 percent greater)and R&D employees(300 percent greater).Canadas innovation strategy should seek to build up innovation assets in a few key regions.Focusing policy on a few Canadian tech hubs is key,but even that is likely not enough.M

301、ajor U.S.tech hubs are incredibly diverse from a technology and industry perspective.To succeed,Canadian hubs will need to specialize and focus on key niche areas where the country can attain global distinctiveness.Finally,for these hubs to succeed,especially against world-class U.S.hubs,their cost

302、of living will need to become more competitive.Vancouver and Toronto are listed in the top 10 most expensive housing markets in the world.88 This serves as a drag on hub development.There are only three solutions to this cost problem:1)incentivize the building of more housing units;2)incentive the m

303、ovement of nontech jobs(e.g.,back-office jobs)out of these high-cost hubs to other places in Canada;and 3)reduce population growth,particularly through low-skill immigration restrictions(as the Canadian government notes,most immigrants settle in either Montreal,Toronto,or Vancouver).89 All three wil

304、l likely be needed.Principle 7:See Big and Medium-Sized Businesses as Beautiful Canada is a small-business economy.But that does not mean it should be.A 2008 Bank of Canada study found,“A positive relationship between firm size and both labour productivity and TFP is found in both the manufacturing

305、and non-manufacturing sectors.Given this relationship,the difference in the employment distribution over firm sizes between Canada and the United States can account for half of the Canada-U.S.labour productivity gap in manufacturing.”90 This why,according to a 2020 Statistics Canada study,firms with

306、 more than 500 employees pay their workers on average 44 percent more than do small firms.91 Larger Canadian firms are also much more likely to adopt a range of information technologies in their production processes.An OECD study of Canadian technology adoption notes that“the adoption of advanced te

307、chnologies ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 58 and practices is positively correlated to the size of firms when taking into account other factors such as industry specificities.”92 And large technology firms employ a higher share of nontechnology workers than do sm

308、aller ones,something that is key because not everyone has the capabilities or interest to be an engineer.93 Large businesses also create more jobs.Statistics Canada data shows that,from 2002 to 2020,small businesses increased employment at half the rate of large businesses(by 13 percent versus 26 pe

309、rcent).94 Moreover,large firms invest more in R&D.As one study of U.S.firms notes,both R&D spending and R&D productivity increase with firm size.95 And large,highly productive firms lead to their suppliers becoming more productive.96 The narrative in Canada needs to change away from the one it is tr

310、ending toward,which holds that large corporations are problematic and small businesses are the font of all that is good and paving the royal road to prosperity.Canadians hear constantly that small businesses are the backbone of the Canadian economy,and that government policy should support them more

311、.97 Doing so would do little to address Canadas IPC challenge and is likely to make it worse.The narrative in Canada needs to change away from the one it is trending toward,which holds that large corporations are problematic and small businesses are the font of all that is good and paving the royal

312、road to prosperity.To do that,Canada needs bigger firms,including small firms that grow up to be medium or large ones.This does not mean that Canada must aspire to building tech giants on the scale of the United States or Korea,although the benefits of being able to do so would be transformative.Rat

313、her,Canada should seek to build more“Mittelstand”(middle-sized)(as Germany has)firms,as these have the heft to not only better compete globally but also remain independent and Canadian headquartered.One step Canada should try is to level the policy playing field when it comes to business size.It can

314、 start with the business tax code,including SR&ED,which provides distortionary preferential rates to small firms.98 Principle 8:Embrace North American Integration,Not Separation Recently,there has been an increase in calls for Canada to assert its independence and separation from the U.S.economy.Can

315、adian civil society leaders fought tooth and nail against Sidewalk Labs Toronto smart city proposal partially due to their distrust of American companies.99 Toronto had the opportunity to be the leading smart city in the world because of Googles investment,and yet it chose to say no.Last year,the Se

316、nate of Canada reported,“To drive economic growth,the federal government should use public procurement as a strategic tool to support growing Canadian companies rather than foreign multinationals.”100 This might work as long as foreign governments,including the United States,do not take reciprocal a

317、ction,blocking any Canadian company from selling to the U.S.government.This step would also require Canada to withdraw from the WTOs Government Procurement Agreement.The Senate report also makes reference to standards,saying that“if Canada is not setting data standards that reflect Canadian interest

318、s,other jurisdictions interests will be built into the data ITIF CENTRE FOR CANADIAN INNOVATION&COMPETITIVENESS|APRIL 2024 PAGE 59 standards and technologies that Canadians use.”101 But the reason the global technology economy works is because the standards-setting process has been industry-led,volu

319、ntary,and based on consensus.While a Canadian traveling to London needs to bring an electric plug adaptor(because the standards for it were set before a global standards process),they dont need to buy a U.K.-compliant smartphone.Weve seen the same narrative when it comes to reforming SR&ED,with some

320、 calling for making it even more discriminatory against foreign firms.Given the fact the OECD has found,“Foreign-controlled firms implement more logistics software technologies,management practices and tools,production process technologies and bio-and-environmental technologies than Canadian-control

321、led firms,”such measures would ensure that Canada is even farther behind global best practice.102 The narrative appears to be that if Canada were just more independent of the United States and discouraged American tech firms from locating and expanding operations in Canada,somehow a blossoming Canad

322、ian innovation ecosystem would emerge.Nothing could be more wrong,in large part because foreign investment in Canada brings jobs,valuable human capital development,and investment.Even if all the proposed separatist measures were put in place,it would not deter Canadians from moving to Silicon Valley

323、 or Canadian tech start-ups from being bought by U.S.firms.In fact,Canadians would do the opposite,because invariably U.S.and EU policymakers would take steps to reciprocate,and Canadian companies would have less access to foreign markets.Firms in technology industries need scale in order to grow an

324、d thriveend of story.Thinking that Canada can have a more isolated economy and have a thriving technology industry ignores this stark reality.To be sure,there is nothing wrong with requiring that IP developed with public funded be commercialized and produced in Canada.But that is very different from

325、 erecting barriers to continental integration and favouring Canadian-owned firms against foreign owned firms operating in Canada.Even if all the proposed separatist measures were put in place,it would not deter Canadians from moving to Silicon Valley or Canadian tech start-ups from being bought by U

326、.S.firms.In short,Canada should seek to find areas for deeper integration with the U.S.economy,including in policy.For example,the U.S.National Institute of Standards and Technology operates a network of 16 Manufacturing USA institutes in in array of technology areas(e.g.,digital manufacturing,light

327、weight materials,etc.)Canada should consider developing its own network of four or five Manufacturing Canada institutes and sign a memorandum of understanding with the U.S.Department of Commerce to allow Canadian firms to work with U.S.institutes and,conversely,U.S.firms with Canadian institutes.Can

328、ada would also benefit from more alignment between innovation surveys and datasets with the United States.It is extremely difficult to come up with an apples-to-apples comparison between innovation performance in both countries due to differing measures and methodologies.ITIF CENTRE FOR CANADIAN INN

329、OVATION&COMPETITIVENESS|APRIL 2024 PAGE 60 Principle 9:Reject the Precautionary Principle and Embrace the Innovation Principle A suite of new technologies,of which AI is just one,have the potential to deliver significant social and economic benefits,as well as power the next wave of Canadian technol

330、ogy companies.However,an increasing number of Canadian activists,scholars,pundits,and policymakers see these technologies as inherently risky,creating substantial negative impacts.As such,they want Canada to emulate Europe and embrace what is known as the“precautionary principle:”the idea that if a

331、technological innovation may carry a risk of harming the public or the environment,then those proposing the technology should bear the burden of proving it will not.If they cannot,governments should limit the use of the new technology,including imposing strict regulatory rules on it,until proven saf

332、e.In fact,for most areas of innovation,the precautionary principle leads to more harm than good.In contrast,the“innovation principle”holds that because the overwhelming majority of technological innovations benefit society and pose modest and not irreversible risks,governments role should be to pave

333、 the way for widespread innovation while building guardrails,where necessary,to limit harms.The innovation principle(something U.S.policymakers,until recently,have embraced)recognizes that market forces,tort law,existing laws and regulations,or light-touch targeted interventions can usually manage the risks new technologies pose.In cases wherein regulations are needed,it stresses the importance of