David Wolfe | February 13, 2019
Canada’s future competitiveness and growth prospects are inextricably linked to our ability to seize the opportunities created by the rapidly evolving digital economy. Evolving digital technologies create an opportunity for new products, technologies, services, business processes, societal tools, and organizations to generate new wealth, but they also challenge the existing system of production and our way of interacting with the world around us. The digital revolution involves more than just a set of industries; it has the potential to transform virtually every sector of the economy.
Canada’s challenge is that businesses have been slow to recognize the extent of the digital transformation, invest in software, and adopt new technologies. Canada’s ability to position itself as a global leader in the digital economy will depend on how effectively governments and policy-makers support firms in navigating these challenges and opportunities.
Government policy initiatives since 2016 have introduced a much-needed update to our innovation strategy, but they are not focused directly on the digital economy and the challenges it poses.
To overcome this gap, Canada’s innovation agenda must be extended to pursue a broader digital strategy centred on three main goals: 1) promoting the adoption of digital technologies across all sectors of the economy; 2) helping companies with a proven track record scale up for global expansion; 3) supporting the creation of firms capable of bringing new, disruptive products and services to global markets.
Ultimately, given the pace of change and the complexity of the challenges involved, the most effective way for governments to respond is through continuous innovation in policy and regulatory frameworks.
Research for a national program sponsored by the Social Sciences and Humanities Research Council has shown that Canadian business has been uneven in its ability to recognize the way software advances are transforming traditional industries. As a result, many Canadian firms are underinvesting in software and lagging in the introduction of corresponding digital processes and techniques to access global markets. Moreover, critical economic sectors are struggling to adapt to the disruption created by dynamic-platform firms.
Other obstacles compound these problems that hamper Canada’s ability to take full advantage of the digital revolution. One of these is Canada’s weak record in building local successes into global powerhouses. Promising startups all too often end up either moving to the United States or sold to foreign (usually U.S.) investors. Without high-growth companies of global scale, Canada will lack the training ground for managers with the skills needed to shepherd startups into successful scale-ups.
Another obstacle to the growth of digital firms is the shortage of Canadian-based patient capital for high-growth companies. Promoters of digital technologies emphasize their ventures’ strong growth prospects, but the reality is that high growth usually implies greater risk, which is a deterrent to traditional sources of investment in Canadian capital markets.
Competing successfully in the global economy increasingly depends on the ability to use intellectual property and proprietary standards as part of a competitive strategy to create what is called “room to operate.” Canadian innovation strategies need to pay greater attention to these critical elements of success in the digital economy.
Canada has a loose and poorly networked innovation system. Existing organizations and programs provide some support for research and development initiatives in advanced technologies and software. However, the system lacks a strategic focus, and key players, including businesses, research and training institutions, industry associations, and government, are not co-ordinated as well as they need to be.
Canada lacks a dedicated innovation agency with the mandate to invest in disruptive new technologies and support the growth of firms in emerging digital sectors. We need to do better at translating existing research strengths into emerging firms with the potential to grow to global scale.
Software and data will be the key to Canada’s success in the digital economy. Policies should ensure that promising Canadian innovators are given the intellectual property-related resources necessary to compete on a level playing field with multinational firms.
Canadian organizations that grant IP rights also need to focus on boosting the amount of Canadian-owned rights that are filed and registered globally. Finally, it is imperative that policy makers recognize the growing connection between IP rights and the ownership of data, as data are increasingly a critical source of competitive advantage for digitally enabled firms. The national IP strategy, therefore, needs to be closely linked to a national data strategy.
Most countries are positioning their digital sector as a critical driver of future economic growth. Not since the onset of the first industrial revolution have we seen such an interconnected set of technologies with the potential to disrupt established industries and economic patterns, as well as to generate new opportunities for future generations.
Governments’ ability to seize the digital opportunity and lay foundations for future growth will depend on realizing three goals: promoting the diffusion of digital technologies across all economic sectors, assisting companies with the commercial potential to grow to a scale that enables them to compete globally, and supporting the emergence and growth of firms with the potential to bring new disruptive products and services to global markets.
David Wolfe is co-director of the Innovation Policy Lab at the Munk School of Global Affairs and Public Policy with the University of Toronto. His full paper on this subject can be found on the Institute for Research on Public Policy website.