Canada's next industrial strategy needs to focus on business innovation

By Bert van den Berg

The New North Star II report should be lauded for suggesting the creation of a national, challenge-driven industrial strategy.  As others have noted, such a strategy would represent an important change for Canada. Past decades have seen a laissez-faire approach focused on ensuring favourable business conditions … an approach that has not resulted in enduring Canadian anchor-companies based on innovation.

Notwithstanding the merits of having an industrial strategy, there are aspects of the document which bear further development. For example, the report suggests that the industrial strategy should target Canada’s most pressing societal challenges, and that in doing so, Canada would create “competitive and exportable advantages”. The report does not explain how such an approach would lead to a critical mass of intangibles and export strength.

The report mentions COVID-19, but rather than recognizing the pandemic as a fundamentally separate challenge, it merely suggests that COVID -19 will accelerate existing challenges. This raises the broader and thorny question of setting the challenge topics. They need to be long-term and important issues such as health pandemics or climate change. One approach might be to use the recently selected superclusters, and to add a challenge area for health pandemics.

Canada needs an industrial strategy that helps business to build thickets of intangibles in targeted areas, and to gain access to export markets. This is best realized by enabling clusters of business to address challenges, and ensuring that innovation resources are available for them to draw on. There are many government agencies which have relevant responsibilities, each with a mandate-driven rather than challenge-driven agenda. At the federal level, this includes the likes of SR&ED (Canada Revenue Agency), Innovation, Science and Economic Development Canada, regional agencies, Business Development Bank of Canada, Export Development Canada, Industrial Research Assistance Program, and the Trade Commissioner Service, in addition to others at the provincial and municipal levels. Alignment of the relevant agencies to the industrial strategy could be strengthened by linking some of the agencies’ funding to their measured impacts on the challenge areas.

Canada needs an industrial strategy that helps business to build thickets of intangibles in targeted areas, and to gain access to export markets

Finally, and of particular interest to someone who has long worked in the public research sphere, the report’s recommendations do not adequately leverage Canada’s public research strengths to support the demand-driven, innovation-pull nature of a challenge-driven industrial strategy.

Innovation is about realizing value from ideas: so the new industrial policy should focus on organizations that work to realize value from ideas. Business has this responsibility, while government and higher education research organizations play a supporting role – or as it is known colloquially “business leads, universities feed”.

For an industrial strategy, post-secondary institutions should train talent, and encourage their researchers to collaborate with business in the challenge areas. With an annual budget of approximately $4 billion, the federal research granting agencies are relevant, but not explicitly mandated to support business innovation.  A key challenge in realizing business innovation impact from granting agency funding is the peer review process used to allocate funds. This process is effective in selecting the most ‘excellent’ proposals, but results in a dispersion of funds without explicit attention to (industrial) priorities.

Canada’s secret weapon in supporting business innovation: colleges, polytechnics, institutes of technology, cégeps, and Technology Access Centres

As part of an impact-focused industrial policy, a two-stage selection process could be effective for allocating a portion of the granting agency funds. The first stage would see peer review select those proposals with sufficient merit for further consideration. The second stage would see the organizations active in the challenge areas select the qualified proposals most relevant to their challenge area.

The report appears to place substantial focus on university training and research, with a recommendation to grow support for fundamental research. It also makes recommendations to improve technology transfer and commercialization functions.

However, neither recommendation fits Canada’s needs in a targeted industrial strategy. While countries with well-developed innovation systems have strong business networks capable of exploiting the research generated locally, (as New North Star II notes) many Canadian inventions are commercialized by companies outside Canada, due to our lack of mid-sized innovating companies. We would do better to focus resources on building the mid-sized businesses.

Finally, the report largely ignores Canada’s secret weapon in supporting business innovation: colleges.  Canada’s colleges, polytechnics, institutes of technology, cégeps and their associated Technology Access Centres work with thousands of companies each year to advance business innovations.

College projects start with an understanding of the business need, and assemble teams that can help businesses move past these challenges and on to commercial success in a timely manner. This approach helps companies to build intangibles – it only needs more resources.

Bert van den Berg retired in 2019 as Director of Colleges, Commercialization and Portfolio Planning at the Natural Sciences and Engineering Research Council. During his time at NSERC he led the development of the Strategy for Partnership and Innovation and the College & Community Innovation program.