Canada faces a triple innovation challenge: decreasing productivity growth, a growing gap in R&D investments and a need to harness innovation more directly for the good of society. Those challenges cannot be tackled if the country remains in its supply-side policy silo.

Decades of government-led attempts to promote productivity and innovation through measures like R&D tax credits, subsidies, and venture capital have not produced the desired results. Relying on these supply-side policies to spur innovation and the generation of knowledge and new technology will not do the job.

Governments need to recognize that for businesses, the incentive to innovate stems from the uptake and market demand for leading-edge technologies. Further, if businesses do not use the latest technologies they fall behind in productivity, and if businesses do not sense the market is ready to absorb their innovations, they are reluctant to innovate.

To get out of this trap, Canada needs to do more to support processes and practices that ensure a better match between demand for and supply of innovation.

Although recent initiatives implemented as part of Canada’s Innovation and Skills Plan show some promising signs, I argue in a recent study for the Institute for Research on Public Policy, what is needed is a more balanced approach: one that focuses on the demand-side by promoting the adoption and spread of new technologies and by creating new markets for innovative products and solutions.

Moving in this direction would require a new mindset on the part of governments and a willingness to organize innovation policy differently in order to realize the potential benefits of connecting innovation demand, R&D investments, productivity and societal problem solving.  A key part of this transformation entails positioning the public sector as innovation-demanding and absorbing partners for innovative firms. By leveraging the “power of the public purse” through strategic procurement, Ottawa could lower the risks and uncertainties that hamper business innovation and in turn boost productivity. Governments could also make better use of subsidies or tax incentives to encourage companies to purchase emerging technologies and train people to use them.

One classic example is that of Germany, which in the late eighties and early nineties put in place subsidies for businesses to invest in computer-aided manufacturing and design technologies with remarkable results in terms of market uptake and firm productivity.

More important, governments can play a key role in promoting research and innovation based on the needs of society more broadly and mobilizing citizens, businesses and public bodies as potential buyers of innovative solutions. This could be done, for example, by issuing a call for innovative solutions to address fundamental challenges like climate change or demographic change, or to reduce government’s environmental impact and costs through more eco-friendly goods and services. Much of this is already being done in Europe, with schemes like Austria’s innovation-promoting procurement strategy and Germany’s High Tech Strategy 2025.

Such mission-oriented approaches can provide the means to focus research, innovation and investments on solving critical problems, while also spurring growth, jobs and resulting in positive spillovers across many sectors. Innovation is key, and linking societal purpose and economic benefit should be the guiding focus for a future-proof innovation policy in Canada