Small catastrophes

We lack, above all, the entrepreneurial initiative achieved by others, not because their people have greater potential than Canadian’s, but because their corporations and their countries have been forced to develop more vigorous responses by exposure to severe conditions from which we have been insulated…

The generation of indigenous technology, and the relentless search for expanding markets…developed as natural and instinctive survival responses to demands from the environment…

What we seem to need in Canada are ‘small catastrophes’

— Vernon Marquez, former Nortel President

Assessments of Canada’s innovation system read eerily similar to Australia’s. Invariably, they start with a nod to research excellence, provide a description the “system” through which innovation happens, and lament the failure of that system to translate that research excellence into business innovation.

· Canada’s combination of high performance on measures of research output and impact and low performance on measures of industrial R&D investment and innovation (such as subpar productivity growth) are viewed as a paradox…

· Australia’s ISR System shows uneven performance… in too many areas, a lack of connectivity across the ISR System means that strong performance in research is not matched by similar performance in commercialisation.

Understanding where the system breaks down can be problematic. Doing so requires both: a nuanced comprehension of what really matters; and quality data, which allows for the system to be monitored and measured. Unfortunately, the lack of the latter impedes the former, and the result is something akin to a drunken man looking for his keys under a lamppost because that’s where the light is best.

An alternative is to look at innovation from the firm’s perspective. Firms are motivated to innovate by a number of different factors: manger ambition, the degree of competition in the market, how demanding are their consumers, confidence in the future and so on. Their ability to respond to those drivers however, is constrained. Business acumen and managerial competence, access to skills, capital and knowledge and the binds of the regulatory and taxation regimes each act to restrain innovation in their own way.

Using this approach, the Council of Canadian Academies asked why firms were “under-innovating” in a 2013 report. And their answer was quite simple: they’re not; firms are innovating just as much as they need to.

Implicitly, the CCA argues that firms have had it too easy for too long. Firms have been protected in recent decades by favourable exchange rates, rapid US growth and a commodity price boom — all of which meant that innovation wasn’t necessary for survival. The landscape, of course, has now changed.

The extent that firms aren’t innovating as much as we want them to reflects either a lack of motivating factors, or constraints that are too restrictive.

If it’s the latter, then solving our innovation woes should just be policy-as-usual. We need to invest in skills and education, facilitate mentoring and business review, support R&D, grow networks and collaboration and continue with deregulation and tax reform.

But if it’s the former, then this suggests the policies required are the ones that impose greater discipline on firm performance — increasing competition (particularly from multinationals and foreign markets), breaking down barriers to entry, empowering consumers with better information and choice, and more stringent lending criteria.

Looking at innovation from a firm’s perspective isn’t meant to downplay the importance of the innovation system by any means. No firm is an island, and everything is interconnected. But it does provide a lens to think about the tangibility and effectiveness of innovation policy.

Post script: I’m currently based with Innovation, Science and Economic Development Canada, where I’m working on a project contrasting the Australian and Canadian innovation systems. Consider this a test balloon for how I’m thinking about the issues. Feedback welcomed.