Delivered to the Canadian Club, Toronto
Prof. Heather Munroe-Blum
March 30, 2009
Thank you, Helen, for that kind introduction, and thank you to Enna Kaplun and Brett Abernethy of Manulife Financial, which sponsored this event.
I am delighted as well to see so many Toronto leaders here amongst you, and many of McGill’s dedicated campaign volunteer leadership including Senator Michael Meighen of Ogilvy Renault LLP, Eugene McBurney of GMP Securities, Donna Hayes of Harlequin, Tim Casgrain of Skyservice Investments, and Stephen Halperin of Goodmans.
The global meltdown has become a near-obsession, and with good reason. Shrinking revenue streams and bleak investment statements have triggered gut-wrenching anxiety. Yet the downturn is not the biggest crisis Canada faces, though it may be the most publicized. The issue we need to confront is our stubbornly poor performance in building the economy of the future: the Innovation Economy — the creation and marketing of ground-breaking knowledge, and value-added goods and services.
Canada is “the little engine that could” puffing its way up a mountain, and our old “I think I can” optimism is no longer enough. It can be done. But only through strategic, concerted and coordinated action. We need a coherent plan, a coherent vision — and we lack one currently.
First, I will quickly survey Canada’s innovation performance, to demonstrate how businesses, universities and governments are inextricably linked when creating innovation. Then I will propose a new framework of partnership across those sectors essential to drive social well-being with future prosperity. I’m going to talk today about tough challenges, but everything I say stands on a foundation of confidence that Canada has the talent and the resources to make it to the top of that mountain.
Canada’s Innovation Landscape
Established and emerging nations alike are in a race to create meaningful economies in a civil society, and the only ones that succeed will be the Innovators. How is Canada performing? Canada’s innovation scorecard is as uneven as our geography, full of peaks and valleys. Internationally, we’re respected — we’re seen as safe, honest and trustworthy. Our quality of life draws talented people from across the world. At the same time, few of our brands and institutions have global recognition. And we lack transformational international networks — networks that span sectors to strategically mobilize private sector, government, university and community resources.
Our higher education system has developed quality institutions with varied missions: from those focused on a regional agenda to internationally ranked universities driving national and international innovation. Having just returned from France, and seeing the Herculean struggle France faces to reform its undiversified and paralyzed higher education system, has only strengthened my determination that we must nurture Canada’s sometimes serendipitous and underleveraged diversification.
With respect to education, Canada leads OECD countries in those aged 25 to 64 who have completed some form of higher education. Great news, until you look closely. Our college graduation rates rank first in the OECD, but only 24 per cent of our working-age population holds a university degree, a rate that lags fully 10 per cent behind the U.S. Canada ranks second-last amongst 17 peers in terms of PhD graduates – the talent pool that dominantly drives the Innovation Economy, in all sectors. Visionary investment over the past decade at federal and provincial levels has helped Canada to attract, attract back and retain international stars, and to give a shot of adrenalin to university research and scholarship. At McGill alone, we have attracted more than 900 outstanding new professors, over 500 of these recruited from outside Canada, including more than 150 repatriated Canadian stars.
But the times they are a’changing — look south. The new U.S. administration has a vision for higher education, research and innovation and the will to achieve it. Paradoxically, the influx of superb new talent to Canada has had the effect of stretching thin operating funding for research and discovery, and we could quickly face a new brain drain. For those of us who saw Canada lose top talent with the cuts to research of the mid-1990’s, it is clear that we cannot afford to revisit that scenario.
Momentum is hard to build, and to lose it is tragic. Noted American Science Policy Advisor, James Duderstadt, claims that it takes, on average, a decade to build a research program of significance, but only two to three years for neglect to destroy it.
Economically and creatively, new federal and provincial initiatives have mapped a way forward to support vibrant regional clusters: energy in Alberta; aerospace in Quebec; biotech and life sciences in Quebec, Ontario, Saskatchewan and B.C.; information and communications technology in many provinces, to name just a few. But isolated initiatives do not reflect a strategy that builds on the best of the best and propels us to win internationally.
According to your own Toronto guru, Richard Florida, 10 mega-regions, which have only six per cent of the world’s population, “account for 43 per cent of the planet’s economic activity and more than half of its patented innovations and star scientists.” And none of these are in Canada. We are still struggling to create mega-regions out of isolated population clusters. Our business demographics are similarly fragmented — Canada has a huge proportion of smaller businesses, many successful nationally, but relatively few remaining companies large enough or innovative enough to achieve and sustain a stable global profile. Canada’s large number of small- and medium-sized enterprises, or SMEs, tell another story; one of an entrepreneurial people who roll up our sleeves and start businesses wherever we see a niche. Canadian companies also have a good track record in creating new-to-market products. The next move is for these talented individuals with their smart ideas, new products and small businesses to compete internationally.
And to move Canada into a 21st-century Innovation world, business expenditures on R&D, or BERD, must grow dramatically. Canada’s BERD sits at just 1 per cent of Canada’s GDP, two-thirds of the OECD average and about half the U.S. rate. And it has been in decline since 2001. The innovative knowledge emanating from our internationally ranked university research has not been accessed to create a similar surge, in value-added benefits to business and the economy.
What does this add up to? Well, the mountain that the little engine of Canada faces isn’t just the rubble from the global economic crisis. We’ve got one mountain of an innovation problem, and we’ve had it since long before Freddie Mac hit the skids. The Conference Board of Canada scores Canada a “D” in innovation, ranking us 13th of 17 countries. And this at a time when it is essential that we move Canada away from our 19th-century manufacturing and commodities-based economy, to a superbly educated citizenry and a 21st-century innovation-led society. To put Canada’s per-capita income on par with the U.S. in 15 years, if the U.S. stays constant, Canada will have to quadruple its productivity growth.
Not problems, but problem, singular
So how do we fix this? First and foremost, we need to start thinking of innovation as a single system — one formed by the interconnected yet unique contributions of businesses, universities and governments. To get on track, we need a coherent plan to create a system of profound linkages and to analyze and boost innovation productivity across sectors.
Take for example, the troublingly low rate of business investment in R&D. I’ve noted that Canada has a high proportion of SMEs, and SMEs have scant resources to conduct research and development — so it’s just a private sector problem, right? No, it’s a government problem, and a university problem, and a community problem and a business problem.
If we view low BERD as a big-picture “system” problem, we get a very different view, and we see why the government’s attempt to boost private-sector investment with R&D tax credits yields very disappointing results. In fact, more direct government investment in business R&D, rather than tax credits, would allow the best alignment of government and industry goals to strategic investment in targeted and basic university research, and graduate level talent development. The shared platform for building the Innovation Society would provide a sense of common purpose for industry-university-government partnerships. We are missing the opportunity to forge strategic partnerships that would integrate cutting-edge knowledge, talent and research from universities into business and government in a way that creates and sustains results.
As another example of working at odds: Canada’s procurement policies. New “Made-in-Canada” procurement practices would foster a more integrated national market for advanced technologies, furnishing incentives for new industry support for research and development. I don’t advocate protectionism here, but instead advocating that we take selfish advantage of the room we have within our WTO and NAFTA frameworks — as our competitor countries are already doing to their significant benefit. In turn, a bigger market and more business R&D would galvanize demand for graduates with advanced degrees, helping Canada to catch up to its peers and fueling the loop of: education --> talent --> societal impact.
So let’s look at the big picture. Our assets are considerable, but they are fragmented. The various sectors driving innovation are riding on different tracks. Our economic clusters are not as connected or as effective as they could be, within our regions, within our nation or out in the world. Our approach to diagnostics and solutions isn’t stimulating real economic growth and social well-being. There has never been a time when we needed to pull together more than we do now, to preserve our fine Canadian social values as we grow the life amenities for which we are known worldwide. Yet we don’t seem to have a plan. Let me propose one.
I know we can
Basically, to innovate, we must integrate. Canada’s unique ratio of small population to big geography means that Canada is not big enough to accommodate one country, 10 provinces and three territories acting in isolation, hoping to capture the attention of institutions and regions we are all courting around the world. We need a coordinated critical mass of quality and innovation to make a difference at home and abroad. We must commit to being full partners in our innovation system. We must connect. To explain this, I’m going to sketch out five points:
First, having made essential strategic stimulus investments in infrastructure supporting science, technology and innovation, and international graduate students, Canada and its provinces now need to increase investment in the full spectrum of basic research. We need to keep pace with the direction of our peers. Why? Because the seedbed of innovation lies in the curiosity-driven fundamental research that creates the opportunity for applied research and practical and commercial benefits. That’s how Silicon Valley was born. To create a new vaccine, you have to know how the virus’s defences work – that’s basic research from which companies and research teams can convert this knowledge into innovation, by developing new processes and products – for example, a new vaccine.
Second, businesses need to invest substantially more in hiring highly educated talent and in supporting applied R&D. We cannot let the economic crisis scare us into retreating to our comfort zone: that is, “local” perspectives, focusing on traditional economic strengths of manufacturing and the sale of raw commodities. Regardless of economic or political pressures, we have to continue to invest in internationally competitive talent, research, products and services. To build on its existing excellence and reputation, Canada needs system-wide solutions for our low rate of business R&D, one of the most stubbornly persistent causes of our underperformance in innovation and economic productivity.
Third, to attract and fill new knowledge-intensive jobs, we must dramatically raise the percentage of the Canadian population who are university graduates, particularly those with master’s- or doctoral-level education. Roughly 70 per cent of new jobs created in the new economy worldwide require a university degree. Currently only 24 per cent of working-age Canadians hold a degree. That’s a big gap.
Fourth, while we focus on constructing our national system of innovation, we cannot go off the rails internationally. We have to act strategically and in systems, not as individuals, in order to connect Canada to the most innovative regions of the world, and to raise our international profile. Canada has a multitude of individual international partnerships — professor to professor, company to company, government to government, and even professor to company. And these “one-off” partnerships contribute incrementally and sometimes meaningfully.
But the future of high-impact international partnerships, I believe, lies in a new model: one where high performers in the key innovation sectors in Canada — from industry, government and universities — work in targeted partnerships with the key sectoral players in peer countries in those fields; where closest competitors will also be closest collaborators. Strategically targeted, these new partnerships can connect our fragmented clusters into golden mega-regions — Canada-California, or Boston-Montreal-Toronto (and the new accords of collaboration between Québec and Ontario are most encouraging), and create the critical mass needed to complete globally in the Innovation Economy.
And they will do so in a way that reflects a new reality that we must integrally intertwine our social and human values with our means of advancing economic productivity and success, not see one in conflict with the other.
My fifth recommendation is ultimately the most important. We all need to shift away from what the Canadian Council of Chief Executives called “a culture of complacency...a sense that good is good enough.”
The world has changed, and Canada, its provinces and its people must change. We need to recognize that innovation will be the engine of success, and governments must have the courage to invest in highly successful businesses, cities, and institutions. All policies cannot be equalization policies. Regional equity is not a substitute for innovation excellence — as the main event, equalization is a recipe for disaster. Excellence in talent and product, whether from universities or businesses, boosts our reputation abroad. It’s called “free advertising”. With the global economic shakedown and a Canadian productivity and innovation gap that refuses to go away, it’s do or die time.
I titled this talk “The Little Engine that Could,” as a favourite metaphor, that prompted me to think of another defining moment in our nation’s history: the creation of the transcontinental railway. In the 19th century, railways were the defining symbol of progress and technological advance. At the birth of our nation, Canada faced a jumble of unconnected and uncoordinated regional railways, run by a patchwork of different companies on different gauges of track. Even time-keeping wasn’t standardized, making scheduling impossible. Yet somehow, all the different players, fighting for their own interests, in an increasingly enlightened self-interest, began to see the vision of what Canada could become. And they acted on that vision. The fragmented regional lines began to connect.
In October 1873, workers changed the broad gauge track from Montreal to Stratford to the standardized narrow gauge that would allow this line to link to the national system — and they did it in one weekend. Four hundred and twenty-one miles of track changed in just three days. The building of the transcontinental railway wasn’t pretty: there were squabbles and corruption and the shameful shadow cast by the poor treatment of those who laboured to build it. But it was completed, and the new railway was the foundation of Canada’s prosperity and cohesiveness as a nation in the making. They didn’t let short-term greed get in the way of long-term greed.
Our current innovation system is the 21st-century equivalent of Canada’s railways just before the great transcontinental railroad. It’s fragmented and regional. It isn’t fully and effectively connected to the world outside our borders. (How much less valuable would our national railway have been if we never got around to connecting it to the U.S. railroad system?) Often, our different sectors seem to be running on different gauges. But Canada holds incredible promise. A new nation-wide innovation system is, ultimately, what we need to bring us into the new age of enlightenment.
And, like Canada’s first “national dream,” we need a strategy to carry it out, and a broad, distributed leadership with the will to act on it. Canada is filled with talented, skilled and entrepreneurial people — and you, and me, the leaders in this room, are many of the chief creators of change. A pioneering spirit formed Canada into a great nation, and we are still moved by that pioneering spirit. Working together, pioneering strategically, we can meet the new challenge. Whether we like it or not, the train is leaving the station. We can miss it – or, we can get on board.