HESA

Higher Education Strategy Associates

Category Archives: Innovation

May 08

Naylor Report, Part II

Morning all.  Sorry about the service interruption.  Nice to be back.

So, I promised you some more thoughts about the Fundamental Science Review.  Now that I’ve lot of time to think about it, I think I’m actually surprised by what it doesn’t say, says and how many questions remain open.

What’s best about the report?  The history and most of the analysis are pretty good.  I think a few specific recommendations (if adopted) might actually be a pretty big deal – in particular the one saying that the granting councils should stop any programs forcing researchers to come up with matching funding, mainly because it’s a waste of everyone’s time.

What’s so-so about it?  The money stuff for a start.  As I noted in my last blog post, I don’t really think you can justify a claim to more money based on “proportion of higher ed investment research coming from federal government”.  I’m more sympathetic to the argument that there needs to be more funds, especially for early career researchers, but as noted back here it’s hard to argue simultaneously that institutions should have unfettered rights to hire researchers but that the federal government should be pick up responsibility for their career progression.

The report doesn’t even bother, really, to make the case that more money on basic research means more innovation and economic growth.  Rather, it simply states it, as if it were a fact (it’s not).  This is the research community trying to annex the term “innovation” rather than co-exist with it.  Maybe that works in today’s political environment; I’m not sure it improves overall policy-making.  In some ways, I think it would have been preferable to just say: we need so many millions because that’s what it takes to do the kind of first-class science we’re capable of.  It might not have been politic, but it would have had the advantage of clarity.

…and the Governance stuff?  The report backs two big changes in governance.  One is a Four Agency Co-ordinating Board for the three councils plus the Canada Foundation for Innovation (which we might as well now call the fourth council, provided it gets an annual budget as recommended here), to ensure greater cross-council coherence in policy and programs.  The second is the creation of a National Advisory Committee on Research and Innovation (NACRI) to replace the current Science, Technology and Innovation Council and do a great deal else besides.

The Co-ordinating committee idea makes sense: there are some areas where there would be clear benefits to greater policy coherence.  But setting up a forum to reconcile interests is not the same thing as actually bridging differences.  There are reasons – not very good ones, perhaps, but reasons nonetheless – why councils don’t spontaneously co-ordinate their actions; setting up a committee is a step towards getting them to do so, but success in this endeavour requires sustained good will which will not necessarily be forthcoming.

NACRI is a different story.  Two points here.  The first is that it is pretty clear that NACRI is designed to try to insulate the councils and the investigator-driven research they fund from politicians’ bright ideas about how to run scientific research.  Inshallah, but if politicians want to meddle – and the last two decades seem to show they want to do it a lot – then they’re going to meddle, NACRI or no.  Second, the NACRI as designed here is somewhat heavier on the “R” than on the “I”.  My impression is that as with some of the funding arguments, this is an attempt to hijack the Innovation agenda in Research’s favour.  I think a lot of people are OK with this because they’d prefer the emphasis to be on science and research rather than innovation but I’m not sure we’re doing long-term policy-making in the area any favours by not being explicit about this rationale.

What’s missing?  The report somewhat surprisingly punted what I expected to be a major issue: namely, the government’s increasing tendency over time to fund science outside the framework of the councils in such programs as the Canada Excellence Research Chairs (CERC) and the Canada First Research Excellence Fund (CFREF).  While the text of the report makes clear the authors’ have some reservations about these programs, the recommendations are limited to a “you should review that, sometime soon”.  This is too bad, because phasing out these kinds of programs would be an obvious way to pay for increase investigator-driven funding (though as Nassif Ghoussoub points out here  it’s not necessarily a quick solution because funds are already committed for several years in advance).  The report therefore seems to suggest that though it deplores past trends away from investigator-driven funding, it doesn’t want to see these recent initiatives defunded, which might be seen in government as “having your cake and eating it too”.

What will the long-term impact of the report be? Hard to say: much depends on how much of this the government actually takes up, and it will be some months before we know that.  But I think the way the report was commissioned may have some unintended adverse consequences.  Specifically, I think the fact that this review was set up in such a way as to exclude consideration of applied research – while perfectly understandable – is going to contribute to the latter being something of a political orphan for the foreseeable future.  Similarly, the fact that the report was done in isolation from the broader development of Innovation policy might seem like a blessing given the general ham-fistedness surrounding the Innovation file, in the end I wonder if the end result won’t be an effective division of policy, with research being something the feds pay universities do and innovation something they pay firms to do.  That’s basically the right division, of course, but what goes missing are vital questions about how to make the two mutually reinforcing.

Bottom line: it’s a good report.  But even if the government fully embraces the recommendations, there are still years of messy but important work ahead.

March 27

Losing Count

Stop me if you’ve heard this story before: Canada is not sufficiently innovative, and part of the reason is that we don’t spend enough on research.  It’s not that we don’t spend enough on *public* research; adjusted for GDP, we actually do above-average on that.  What pulls us down is in international comparisons corporate R & D.  Our narrow-minded, short-sighted, resource-obsessed business class spends far less on R&D than its equivalents in most other country, and that is what gives us such a low overall R&D spend.

Familiar?  It should be; it’s been standard cant in Canada for a couple of decades at least.  And it gets used to argue for two very specific things.  There’s the argument which basically says “look, if private R&D is terrible, we’ll just have to make it up on the public side, won’t we?”, and where else to spend but on university research?  (Universities Canada used to make this argument quite a bit, but not so much lately AFAIK).  Then there’s the argument that says: well, since under the linear model of innovation in which public “R” leads to private “D”, the problem must be that public “R” is too theoretical on insufficiently focussed on areas of national industrial strength – and what we really need to do is make research more applied/translational/whatever.

But what if that story is wrong?

Last year, the Impact Centre at the University of Toronto put out a little-noticed paper called Losing Count. It noted a major problem related to the collection and reporting of R&D.  Starting in 1997, Statistics Canada adopted a definition of Research and Development which aligned with Canada’s tax laws.  This makes perfect sense from a reporting point of view, because it reduces the reporting burden on big corporations (they can use the same data twice).  But from a measuring Canada against other countries perspective, it’s not so good, because it means the Canadian statistics are different from those in the rest of the world.

Specifically, Canada since 1997 has under-reported Business R&D in two ways.  First, it does not report any R&D in the social sciences and humanities.  All those other OECD countries are reporting research in business, financial management, psychology, information science, etc., but we are not.  Second, work that develops or improves materials, products and processes, but that draws on existing knowledge rather than new scientific or new technological advances is not counted as Research & Development in Canada but is counted elsewhere.

How big a problem is this?  Well, one problem is that literally every time the Canada Revenue Agency tightens eligibility for tax credits, reported business R&D falls.  As this has happened a number of times over the past two decades, it may well be that our declining business R&D figures are actually a function of stricter tax laws than they are of changing business activity.  As for the difference in absolute amount being measured, it’s impossible to say.  The authors of the study took a sample of ten companies (which they recognize as not being scientific in any way) and determined that if the broader, more OECD-consistent definition were used, spending on R&D salaries would rise by a factor of three.  If that were true across the board (it probably isn’t) it would shift Canada from being one of the world’s weakest business R&D performers to one of the best.

Still, even if this particular result is not generalizable, the study remains valuable for two reasons.  First, it underlines how tough it is for statistical agencies to capture data on something as fluid and amorphous as research and development in a sensible, simple way.  And second, precisely because data is so hard to collect, international comparisons are extremely hard to make.  National data can be off by a very wide factor simply because statistical agencies make slightly different decisions about to collect data efficiently.

The takeaway is this:  the next time someone tells a story about how innovation is being throttled by lack of business spending on research (compared to say, the US or Sweden), ask them if they’ve read Losing Ground.  Because while this study isn’t the last word on the subject, it poses questions that no one even vaguely serious about playing in the Innovation space should be able to ignore.

March 20

There is no Fourth Industrial Revolution

I am seeing an increasing number of otherwise thoughtful people in Canadian university and research circles going around talking about the “Fourth Industrial Revolution”.  They need to stop.

There is no such thing as the Fourth Industrial Revolution.  It is a catch-phrase made us by Klaus Schwab, head of the World Economic Forum (the Davos folks), which he developed in an eponymous book released in late 2015.  I read it.  It’s dreadful.  Seriously, seriously awful.  No redeeming characteristics whatsoever.

The argument lies in the same kind of shallow “Digital! Clean Tech!  Woo!” analysis that seems to animate Navdeep Bains, our Minister for pro-IT Industrial Policy.  Essentially what it comes down to is that after a long China-driven commodities super-cycle, everyone is interested in more knowledge-intensive industries.  And a bunch of these seem to be (emphasis on seem) to be on the tipping point of some interesting transformations that might have deep economic ramifications: autonomous vehicles, AI, nanotech, quantum computing, materials science, energy storage, etc.  But all of this does not a revolution make.

Generally, economic historians posit that there was one starting in Northern England built around textiles in the eighteenth century, one around mechanical mass production starting in and around Detroit in the early 20th century, and – maybe, this is still disputed – one based around computers and information technology starting in the 1960s/70s/80s (depending on who is telling the story).    The question is really whether all these new technologies that Schwab is so excited about are really new or just extensions of the It revolution of the late twentieth century.  Schwab claims it is because of three factors: “velocity” (change is happening more quickly), “breadth and depth” (some handwaving about “unprecedented paradigm shifts”) and “systems impact” (something about transformation across industries that also looks like a lot of handwaving).  But as several articles noted at the time (see here, here and here), this is fundamentally unconvincing.  All of these new showy technologies are children of the information revolution, and there’s no sign of any radical break in the economy or the pace of technological change that would make us think that there’s been some “revolutionary” break.  Is change occurring?  Of course.  But change has been occurring for decades, even centuries, sometimes at a much faster pace than today.

Now, sure, some might point to the huge amounts of money now being poured into alleged growth industries, like “Clean Tech” (or the “Green Economy” as its sometimes called).  Our Minster for Shaking Hands with Tech Executives, for instance, likes to talk about Clean Tech being a “$3 trillion industry”.  But a lot of that has to do with creative re-labelling of existing economic activities.  So, for instance, one major study which hyped the value of this economy includes in its definition of green tech large swathes of the construction industry (energy efficiency!), the automobile industry (lower emissions!), sewage collection (it’s about waste!)….you get the picture.  Important?  Yes.  But improvements in these areas are mostly about slow transformation of the economy, not some kind of big break with the past. Not, in other words, revolutionary.

And of course, a lot of the hype about these new technologies is just that: hype.  Everyone is talking about driverless automobiles, but there’s no certainty that the legal issues surrounding them will allow them on the road in major numbers for at least a decade (who is at fault if a driverless car gets into an accident?  Who will insure cars if there is ambiguity about this?)  AI sounds like a huge market, but a lot of it has to do with re-classifying what used to be called “software” as AI.  Nanotechnology has been the tech of the future for at least 15 years; biotech for 30.  Etc, etc.  There’s lots of groovy science out there, but turning it into industrial or consumer products at scale is tricky and doesn’t come quickly.  And because modern capitalism isn’t patient, that means a lot of money for product development is going into things which fundamentally don’t raise productivity.  As Peter Thiel once said, “we dreamed of flying cars, we got 140 characters”.

And even if some of these do manage to make it to market, there are some real questions about how much they will change living standards.  If you’re in any way inclined to call yourself a techno-optimist, I really urge you to read Robert Gordon’s The Rise and fall of American Growth, which painstakingly reconstructs the last 150 years of American economic history (it works equally well for Canada, though), and suggests both that a) the high growth rates of the mid-twentieth century were a one-off, never to return and b) that most of the major changes to the workplace due to the It revolution have already happened.

So in any case, if you’re tempted to try to join the Davos buzzword crowd and throw the term “Fourth Industrial Revolution” into a conversation, just don’t.  In a few years, when that term has been properly consigned to the dustbin of history, you’ll thank me

March 16

Good Innovation Policy

Yesterday, we looked at what actually constitutes Innovation Policy. Today, I want to talk about what an ideal innovation policy would look like. I apologize in advance for the length of the post.

So, the first ingredient in innovation policy is skills. But this term needs to be understood in some specific ways. It certainly means having a large number of what are called “Highly Qualified Personnel”, which usually but not always means PhDs, across many fields. Part of the deal with innovation is that generating new ideas means having people who are at the cutting edge of science, engineering and social science. In turn, this means spending reasonably big on scientific research because otherwise the good grad students will go elsewhere.

That’s the easy bit. The trickier bit is developing an education system that supports diffusion of new ideas. Innovation is not just about developing new products; it’s about making firms (and public bodies, too) more efficient through the adoption of new technologies and processes. The problem is literally no one knows how to do this. Is it about having a strong secondary school system with high standards? Probably. Can’t hurt, anyway. Does it mean very high levels of university participation? Not clear: Switzerland seems to do very well without this; but arguably it works for Korea and Finland. Does it mean high levels of technical education? Possibly: seems to work for Switzerland and Germany. But Canada has pretty much the highest levels of non-university higher education in the world and it doesn’t seem to work as well for us. So is it something about skills mixes? Does more STEM education (or, God forbid, “training coders”) help you become more innovative? Not really. The US, which despite everything is still seen as an innovation leader, has the lowest rates of STEM graduation (as a proportion of total degrees awarded) in the G7; Italy and France do far better.

So is it something in the way people are educated, something in the pedagogy? Maybe. Is it something non-cognitive, something cultural? Probably. But no one really knows how to change this. That doesn’t mean experiments in skills for innovation are doomed to failure, it’s just to acknowledge that there is a substantial amount of groping around in the dark here. A good innovation policy would acknowledge this. So it would have money set aside for real experimentation in education and training, much like the FutureSkills Lab proposal, albeit with the crucial proviso that in a federal state you really need both levels of government working co-operatively and consultatively (not – repeat NOT – unilaterally) to make this work. And if there’s an area where we should start, it’s in our business schools – we need to better understand why we have a dearth of managers with the skills to boost exports and manage growth.

OK, so that’s education. What next? Rules and Incentives. Barriers to market entry need to be dismantled, cartels smashed: anything that increases competition or reduces barriers to new products getting to market should – barring some reasonable measures around product safety – be adopted. If you want to know why serious innovation policy types laugh at the current Liberal government, it’s due to their total lack of interest in doing anything in these areas while simultaneously proclaiming to be “pro-innovation”. A country which cannot dismantle a dairy cartel cannot be considered an Innovation Nation. Also: let companies get big. There is no earthly reason why Canada taxes big businesses more than small ones. It’s a terrible idea. There are others, but those are the big ones.

The third big one is funding: how do we make sure funds get to innovative new companies?  This is a tough one, not just because of the potential for rent-seeking, but also because it’s genuinely hard to pick winning companies and/or get banks to change policies to lend to younger, more speculative ventures.  The consensus in the Innovation policy world is that Israel seems to do this pretty well, but exporting models like this isn’t easy.  I’m absolutely no expert in the area and so won’t comment further, but just know this is a big issue and any effective Innovation Policy needs to address it.

The fourth and final area is what is often called “innovation ecosystems”. Now this is a slightly fraught term because frankly it can be used to justify pretty much any old thing, and a lot of it is junk.  But the basic insight is this: innovation doesn’t happen in isolation. Firms’ ability to create innovative processes and products depends on their access to finance, talent, and knowledge, (sometimes but not always universities), and their interactions with other firms and with customers. To some degree, this is aided by proximity, which is why people get excited about the role of geographical clusters in innovation.  But to reduce it to proximity is overly reductionist, innovation is not simply a matter of co-location. Networks matter, but not all networks are local.

In fact one of the most obvious gaps in Canadian government policy thinking around innovation is the role of transnational networks in innovation. This simply makes sense: not many production/value chains are located within a single country any more. Among mid-sized countries, the ones that have done best in exploiting new technologies have been those that have worked out niches in global value chains. This has practical implications for policy. Canada may be good at Artificial Intelligence (whatever that means these days), but it’s probably never going to develop many companies that are going to be global players. So the goal of policy should really be to figure out how Canada can develop companies that can thrive as partners to other, larger companies or networks located outside Canada. Think about the automotive industry: Canadian attempts to have full-fledged automobile companies have been disastrous (Bricklin!) but we do pretty well in autoparts (Magna).

I’m not saying it is easy to develop government interventions that foster these kind of connection. But it is easy enough to get rid of rules that inhibit collaboration. For instance, there are rules in tri-council funding which impede collaboration with foreign scholars (and I’m not just talking about making foreign scholars fill in the Canadian Common CV). These rules actually get in the way of long-term partnerships and foreign source of income, like the US National Institute of Health (NIH). And in turn, that restricts knowledge generation in Canada – knowledge that might flow into new products or processes.

To summarize: innovation is a fairly diffuse idea, and our knowledge about how to promote it is patchy at best.  But what we do know is that it is a very multi-dimensional process.  It is certainly not just about hi tech industries.  Equally certainly, it is not just about knowledge generation.  Universities may have been conditioned to think that all research = innovation (in retrospect, the name “CFI” probably was not the most felicitous name choice), but that’s not true either.  It only becomes innovation when it leads to tangible change, which requires knowledge to be adopted outside the institution.

That’s not to say higher education has no role in innovation; the provision of skills and the generation of knowledge are both an important part of the puzzle: so more money for basic research, doctoral studies are definitely in order, as are fewer barriers to international research collaboration.  But so too is a lot of reflection on what makes individual people – particularly those who end up as business leaders – better problem-solvers and innovators.  If universities really want to be part of the solution, they need to be thinking about how pedagogies need to change, not just how other people can write them bigger cheques.  Some do, of course, but it’s far from central to the discourse.  That needs to change.

March 15

What Is Innovation/Innovation Policy, Anyway?

I write and tweet a lot about innovation policy, mainly with respect to my frustration with our current government’s two-dimensional views on the subject.  I’ve been meaning to write a piece on how to do innovation policy right, but based on a number of conversations I’ve had with folks, I think it’s important first to deal with the question of: “what is innovation” and “what is innovation policy”? Because frankly these terms are getting slung around with such abandon that they appear to have lost all meaning and many people are simply dismissing the policy area as a large waste of time.

Sometimes, it’s hard not to sympathize with this point of view.  This week in a Vancouver Sun op-ed, UBC President Santa Ono described innovation as “a never-ending exchange between the realities of today and the potential of tomorrow.”  To which I think most people would respond with a heathy “you what, mate?”

More helpfully, Ono also included in his article the OECD definition of Innovation: “the implementation of a new or significantly improved product (good or service) or process, a new marketing method, or a new organizational method in business practices, workplace organization or external relations.”  Even apart from any methodological difficulties in tracking this, it is still a bit tricky as a definition.  For instance, not everything which is new is beneficial or adds value. Crystal Pepsi comes to mind here.

But more broadly, the best way to think of innovation as a policy goal is: can a country/province/whatever become a place where people can put new ideas into practice easily and quickly.  It doesn’t have to be a “new product” (although Canadian governments sometimes act like this is what it means); it can also be a new process.  And it need not be strictly in the commercial sphere; innovation in the public sector is important, too.

Or, at a broader level, how can we be more like Estonia and less like Greece?

Now, as you can imagine, this is tricky because no one actually knows how to be more like Estonia (or Denmark, or Finland – pick a Nordic-ish country).  We can sort of describe what makes them the way they are, but there is no road map to getting from here to there.  But basically the critical questions are:

  1. How do we get ideas to generate and circulate faster?  (This goes back to the Paul Romer question I posed back here).
  2. How do we get people to turn ideas into practical ideas to create new/improved products and processes?
  3. How do we ensure that new products and processes do not get stamped down simply for reasons of inertia or protecting vested interests?

Some of these issues lend themselves to direct government spending.  Some of them are about regulations and incentives, which governments can also change.  And finally, some of them are issues of culture (institutional and otherwise) which is an altogether trickier terrain.

Governments can address the skills part of this through education.  Funding more doctoral students, attracting more top profs, etc. leads to more Highly Qualified Personnel and hence generating more ideas at the frontier of science.  Funding of basic science also plays a role here.  Governments can change the nature of secondary and undergraduate of education in ways that might make workers more likely to be problem-solvers, idea generators and early adopters of other people’s new ideas/technology.  It can incentivize entrepreneurialism through tax policy and to some extent through grants and – maybe, the jury’s still out – education as well.  But culture plays a big role here and credible ideas for how to shift this are thin on the ground (though I think we can all probably agree that a strategy of having Ministers go around encouraging people to “take risks” and “think outside the box” has, to put it politely, a low probability of success).

As for the third part, not squashing new products…obviously regulatory and competition policy really plays a role.  But again, part of it is cultural, and takes place inside firms and other institutions, areas where policy does not easily reach.  Take the medical products industry: how do you combine a culture of looking after patient safety with a culture of encouraging innovation (which by definition means making mistakes on the way to success)?  Or how do you get companies to pursue innovations which may make existing profitable product lines less profitable?

Evidently, this is complicated stuff.  In some ways it is easier to step back and say what Innovation Policy is not.  It is not Science Policy, which is about deciding how to invest in basic research – though Science Policy affects Innovation Policy for obvious reasons.  It is not Growth Policy, which is about finding the highest rates of economic growth in the short term, because Innovation Policy is in the end much more concerned with developing ideas which will matter 10-20 years out than what will boost growth right now.  It is definitely not Industrial Policy, because it is about economy-wide pre-conditions for industry, not about picking winning industries because they seem to be “hot”.

(I have recently been informed that the Ministry of Innovation actually includes my daily blog posts in its media monitoring.  If whoever is in charge of this operation could mark up that last section IN HUGE RED INK before slipping a copy to Minister Bains, that’d be awesome.  Thanks.)

So that’s my take on the meaning of innovation and innovation policy.  Tomorrow: what an ideal policy looks like.

March 13

Tea Leaves on the Rideau

Last Tuesday, federal Finance Minister Bill Morneau set the date for the federal budget for next Wednesday (March 22) and naturally people are wondering: what goodies are in store?  Without being privy to any inside information, here’s my take on where we are going.

At the press conference announcing the budget date, Minister Morneau dropped some important hints.  The biggest one is that, contrary to what had been heavily promoted for the past year, this budget will not be an “Innovation Budget”, but will represent a “downpayment” on an Innovation Budget.  From this we should probably deduce two things.  One: the feds are broke.  Well, maybe not broke, but certainly unwilling to increase borrowing in the face of a $30 billion deficit, slow growth and adverse demographic trends.  Two: the government has – THANK GOD – attained enough self-awareness to discern that does not really know what it’s doing on this file.  I noted back here that the Finance Minister’s Economic Council was flatly in opposition to the Innovation Ministry’s ideas about innovation clusters, and it probably came to the conclusion that making big budget commitments in the face of such disagreement was untenable.

To be clear: I am thrilled with this outcome.  Yes, it’s too bad the feds seem to have wasted a year on this file.  But far better to take a sober second look at the issue and make smart policy rather than to charge forward in order to meet an artificial deadline.  I also take it as a favourable sign that the government has brought Ivey Professor Mike Moffatt – co-author of a large recent piece on Innovation Policy by Canada 2020 – into the ministry on a temporary basis. For one thing, he actually understands what innovation policy means outside the tech sector, a concept which has been missing from ministry discourse since the minute Minister Bains was appointed.

(Many of you have been asking to me on twitter to explain what the hell the terms “Innovation” and “Innovation Policy” actually mean.  Sit tight: we’ll work on that one this week.)

There were also hints from the Minister that this would be a “skills” budget, a sentiment which has left many puzzled.  A year ago, the big issue for the near term was supposed to be the renegotiation of Ottawa’s Labour Market Development Agreements with the provinces, which mostly hasn’t happened. Since then there have been no major policy initiative apart from that.  There has been – via the consultations on Innovation policy – something of an understanding that skills are a big part of the innovation problem, but government thinking doesn’t appear to have progressed much beyond “more coders”! as a result.  (At a rough approximation, this government’s skills policy is more or less the same as the last ones, only if you just take out all the references to welding and insert the coding instead).

The worry here is that the “big initiative” will in fact be the implementation of the horrifically-named “FutureSkills Lab” promoted by Dominic Barton, chair of Morneau’s Economic Advisory committee (which I described back here).  If that’s the case, we may be about to view the first really big policy disaster of the Trudeau era.  First of all, no one is going to buy FutureSkills – essentially a kind of policy laboratory – as something which will help Canadians in anything other than the long term.  Second of all, the feds have yet to discuss the idea meaningfully with the provinces and without their buy-in, this initiative will be Dead on Arrival, just as the Canadian Council on Learning was.

To be clear: I don’t think this is going to be the “big initiative”.  I don’t think the Liberals are that stupid.  But I guess we’ll see.

What about Science?  Here, the news is not good.  You may recall that the Government of Canada commissioned a Fundamental Science Review, and asked by the inimitable David Naylor to run it.  Naylor, as requested, submitted the report to the Minister of Science in December.  The Government of Canada has yet to publish it and refuses to answer questions about when it might be published.  Why?  It seems transparently obvious that the government found some of the findings inconvenient, and would prefer to bury it until after the budget.  Maybe the report suggested the system needed more money (which would have been beyond the committee’s remit since it was only asked to comment on the management of the system, not the size).  Maybe the report suggested that certain science bodies which the government has already decided to fund were redundant.  Either way, the government seems to have decided the budget will be easier to spin if we haven’t all first read Naylor’s report.  I have a hard time imagining how this could a harbinger of good news.

In sum: don’t bank on anything big in this budget.  In fact, brace yourself for at least one major piece of goofiness.  Fingers crossed it doesn’t happen, but best to be prepared.

February 28

The “Not Enough Engineers” Canard

Yesterday I suggested that Ottawa might be as much of the problem in innovation policy as it is the solution.  Today I want to make a much stronger policy claim: that Canada has a uniquely stupid policy discourse on innovation.   And as Exhibit A in this argument I want to present a piece posted over at Policy Options last week.

The article was written by Kat Nejatian, a former staffer to Jason Kenney and now CEO of a payment technology company (OVERCONFIDENT TECH DUDE KLAXON ALERT).  Basically the piece suggests that the whole innovation problem is a function of inputs: not enough venture capital and not enough engineers.  Let me take those two pieces separately.

First comes a claim that Canada’s Venture Capital funding is following further and further behind the United States.  He quotes a blog post from Wellington Financial saying: American venture-capital-backed companies raised US$93.37 per capita in 2006, while in Canada we raised US$45.76 per capita. Nearly a decade later, in 2015, US companies had doubled their performance, raising an average of US$186.23 per capita, while Canadian companies had only inched up to US$49.42.

There are two problems here.  First, these figures are in USD at current exchange rates.  You may remember that 2006 was an extraordinarily good year for the Canadian dollar, and 2015 less so, so this isn’t the best comparison in the world.  Second, they in no way match up with other published data on venture capital as a percentage of GDP.  The reference years are different, but the Conference Board noted that the VC funding as a percentage of GDP grew in Canada from .06 to .1% of GDP between 2009 and 2013, and now stands second in the world only to the US (the US grew from .13% to .18% while all of Europe fell back sharply).  And Richard Florida noted in The Atlantic that in terms of VC funding per capita, Toronto is the only non-American city which cracks the world’s top 20.  I am not sure what to make of these differences; I expect some of it has to do with definitions of venture capital (early-stage vs. late-stage for example).  But looking at more than one data point throws Nejatian’s hypothesis into doubt.

But the bigger whopper in this article has to do with the claim that Canada does not educate enough engineers.  Now forget the fact that the number of engineering graduates has very little to do with success in innovation, even if you define innovation a narrowly as Nejatian does (i.e. as tech and nothing else).  His numbers are simply and outrageously wrong.  He claims Canada produced only 12,000 new Engineering grads; in fact, the number of undergraduate degrees awarded in Architecture & Engineering in 2014 was 18,000, and that’s excluding math and computer science (another 5,400), not to mention new graduate degrees in both those areas (another 11,700).  He claims the UK produces 3.5 times the number of engineers per capita that Canada does.  It doesn’t; there is a gap, but it’s not very big – 9% of their degrees go to engineers compared to 8% of ours (see figure below).  He repeats the scare claim – demolished long ago by Vivek Wadhwa among others – that India is going to eat our lunch because it graduates 1.5 million engineers per year.  This argument needs to go back to 2006 where it belongs: only a tiny percentage of these engineers are of the calibre of North American E-schools, and one recent Times of India  piece suggested that 93% of them were not actually employable (which sounds like an exaggeration but still points to a significant underlying problem).

Figure 1: Science & Engineering Degrees as % of Total Degrees Awarded, Selected OECD Countries

OTTSYD 2017-02-27-1

(See what I mean?  The US has the smallest percentage of undergraduate degrees in engineering and yet it leads everyone else in tech…yet apparently that doesn’t matter to Nejatian – all that matters is MOAR ENGINEERS.  I mean, if we increase our proportion of degrees in engineering by about 60% we could be as innovative as…Italy?)

I could go on, but you get the picture.  This is a terrible argument using catastrophically inaccurate data and yet it gets a place in what is supposed to be our country’s premier publication on public policy.  It’s appalling.  But it fits with the way we talk about innovation in this country.  We focus on inputs rather than processes and relationships.  We see a lack of inputs and immediately try to work out how to increase them rather than asking i) do these inputs actually matter or ii) why are they low in the first place (actually, the only redeeming feature about this article is that it doesn’t make any recommendations, which given the quality of the analysis is really a blessing for all concerned).

Could Canada do with a few more engineers?  Probably.  It’s the one field of study where incomes of new graduates are still rising in real terms, which suggests the demand could support a greater supply.  But the causal link between Engineers and innovation is a vast oversimplification.  If we want better policy in this country, we need to start by improving the quality of the discourse and analysis.  Policy Options has done us all a disservice by letting this piece go out under their name.

February 27

Can Ottawa Do Innovation?

The National Post’s David Akin had a useful article last week entitled Canada Has Failed at Innovation for 100 years: Can The Trudeau Government Change That?  Read it, it’s good.  It’s based around a new-ish Peter Nicholson article in Canadian Public Policy which is unfortunately not available without a subscription.  But Nicholson’s argument appears to be: we’ve done pretty well our entire history as a country copying or importing technology from Americans: what exactly is it that Ottawa is going to do to “shock” us into becoming a massive innovator?

Good question.  But I have a better question: does it make any sense that the federal government is leading on these kinds of policies?  Wouldn’t provinces bet better suited to the job?  Knee-jerk centralists (my guess: probably half my subscribers) probably find that suggestion pretty horrific.  But hear me out.  There are a number of really good reasons why Ottawa probably isn’t best placed to lead on this file.

First: innovation policy is to a large extent is about people and skills.  And skills policy has been fully in the hands of provincial governments for over twenty years now.  We accept that provincial governments are closer to local labour markets and local business for skills purposes.  Surely the same is also true for innovation?

Second: Canada is huge.  We’re not like Singapore or Israel or Taiwan, where industries are essentially homogenous across the entire country.  We are more like China or the US, where a single industry might look completely different in one part of the country than another.  If you haven’t already read Run of the Red Queen: Government, Innovation, Globalization and Economic Growth in China by Dan Breznitz and Michael Murphree, I recommend it.  Besides showing how innovation can be profitable even when it is not of the “new product”/”blue sky” (a truth to which our current government seems utterly oblivious), it shows how the structure of a single industry (in this case, IT) can be utterly different in different parts of a single country.  That’s also true in Canada.  And it’s why it’s tough to draw up decent national policies on a sectoral level.

(A corollary to that second point, which I made back here: because the country is so big, any government attempt to play the “cluster” game in the name of improved innovation is bound to get wrapped up in regional politics pretty quickly.  Anyone who’s watched Montreal and Toronto’s unseemly jockeying for a single big federal investment in Artificial Intelligence will know what I mean.)

Over the course of the past twenty years, of course, many provinces have set up their own innovation ministries or agencies.  But apart from the partial exceptions of Ontario and Quebec, they tend to be poor cousins of the federal ministry: understaffed and not especially well-resourced.  As a result, they’re not at present any more effective than Ottawa in driving innovation.  But that could change with more effective investment.  And of course, Ottawa would always have a role to play: if nothing else, its authority over competition policy means it will always have levers which it can and should use to promote innovation (even if at present it seems extremely reluctant to use this particular lever).

In short, it’s worth considering the hypothesis that it’s not “Canada” which has failed at innovation, but Ottawa.

February 21

Two Studies to Ponder

Sometimes, I read research reports which are fascinating but probably wouldn’t make for an entire blog post (or at least a good one) on their own.  Here are two from the last couple of weeks.

Research vs. Teaching

Much of the rhetoric around universities’ superiority over other educational providers is that their teachers are also at the forefront of research (which is true if you ignore sessionals, but you’d need a biblically-sized mote in your eye to miss them).  But on the other hand, research and teaching present (to some extent at least) rival claims on an academic’s time, so surely if more people “specialized” in either teaching or research, you’d get better productivity overall, right?

Anyone trying to answer this question will come up pretty quickly against the problem of how to measure excellence in teaching.   Research is easy enough: count papers or citations or whatever other kind of bibliometric outcome takes your fancy.  But measuring teaching is hard.  One line of research tries to measure the relationship between research productivity and things like student evaluations and peer ratings.  Meta-analyses show zero correlation between the two: high research output has no relationship with perceived teaching quality.  Another line of research looks at research output versus teaching output in terms of contact hours.  No surprise there: these are in conflict.  The problem with those studies is that the definitions of quality are trivial or open to challenge.  Also, very few studies do very much to control for things like discipline type, institutional type, class size, stage of academic career, etc.

So now along comes a new study by David Figlio and Morton Schapiro of Northwestern University, which has a much more clever way of identifying good teaching.  They look specifically at professors teaching first year courses and ask the question: what is the deviation in grades each of their students receives in follow-up courses in the same subject. This is meant to measure whether or not professors are “inspiring” their students.  Additionally, the measure how many students actually go on from each professor’s first year class to major in a subject.  The first is meant to measure “deep learning” and the second to measure how well professors inspire their students.  Both measures are certainly open to challenge, but they are still probably better than the measures used in earlier studies.

Yet the result is basically the same as those earlier studies: having a better publishing record is uncorrelated with teaching quality measures: that is, some good researchers have good teaching outputs while others don’t.

Institutions should pay attention to this result.  It matters for staffing and tenure policies.  A lot.

Incubator Offsets

Christos Kolympiris of Bath University and Peter Klein of Baylor University have done the math on university incubators and what they’ve found is that there are some interesting opportunity costs associated with them.  The paper is gated, but a summary can be found here.  The main one is that on average, universities see a decrease in both patent quality (as measured by patent citations) and licensing revenues after establishing an incubator.  Intriguingly, the effect is larger at institutions with lower research income, suggesting that the more resources are constrained, the likelier it is that incubator funding is being drawn from other areas of the institutional research effort, which then suffer as a result.

(My guess, FWIW, is that it also has to do with limited management attention span.  At smaller institutions, there are fewer people to do oversight and hence a new initiative takes away managerial focus in addition to money).

This intriguing results is not an argument against university or polytechnic incubators; rather, it’s an argument against viewing such initiatives as purely additive.  The extent to which they take resources away from other parts of the institution needs to be considered as well.  To be honest, that’s probably true of most university initiatives, but as a sector we aren’t hardwired to think that way.

Perhaps we should be.

February 07

Innovation and Skills Redux

So, yesterday Federal Finance Minister Bill Morneau’s Advisory Council on Economic Growth released five (!) papers on innovation, skills, and a bunch of other things.  I’m sure there’s a lot of ink on these in today’s papers, mainly around proposals to raise the retirement age (which we actually did two years ago, except the Trudeau government reversed it, but now evidence-based policy FTW, as the kids say).  I’ll restrict myself to some brief thoughts about two areas in particular: innovation and skills

On Innovation:   I must admit I got a bit of a thrill reading page 9 of the report, in which the Council body-slams the innovation Minister’s ideas about geographically-based innovation “clusters”.  They’re polite about it, “applauding” the Minister for coming up with such a great idea, but then go on to say that they’ve actually read the literature and know what works, and it ain’t clusters.  Hilarious.

What do they propose instead?  Well, it’s something called “innovation marketplaces”.  What are those you ask?  Well, to quote the report they’re “centers of technology and industry activity that are developed and driven by the private sector. An innovation marketplace brings together researchers and entrepreneurs with public and private customers around a common business challenge. These marketplaces match innovation demand from corporations and governments with innovation supply from researchers and entrepreneurs. This matchmaking strengthens supply-chain relationships and the flow of information, thereby fueling further innovation.”

If you think that sounds super hand-wavy, you are not alone.  In practice, there’s some overlap with the ideas Minister Bains has been peddling for months (Artificial Intelligence!  Cleantech!) but these idea are more focussed on industry and less geographically-based, both of which are Good Things.  However, it still equates innovation with new product development, specifically in gee-whizzy tech areas, which is a Bad Thing.  (Non-gee-whizzy sectors get their due in a separate paper on growth; a Good Thing to the extent that at least the Council conceptually understands the difference between Growth Policy and Innovation Policy.  I’m yet to be convinced the Minister has such an understanding.)  So there’s some overlap in ideas but considerable differences in the kinds of programs that are supposed to get us there.

But the budget’s only a couple of weeks away.  How does this circle get squared?   Messily, I suspect.  But we’ll have to wait and see.

On Skills:  According to the report, everything is going to be solved by a new agency going by the godawful name “Futureskills Lab”.  As near as I can tell, this agency is going to be a lot like the Canadian Council on Learning was, only: i) more focused on skills than education (by “skills” they seem to mean tech skills – eight of the ten examples of skills used in the report are tech), ii) more focused on (industry-led) experimentation and dissemination and “what works” and iii) it’s also going to be handed the prize of finally sorting out all that Labour Market Information stuff that Don Drummond has been yelling about for years and no one trusts Statscan to get right.  (I kid….Don Drummond would never raise his voice).

OK, so…there’s nothing wrong with funding lots of experimentation on skills and training.  In fact, it’s a great idea.  Fantastic.  The over-focus on tech skills is <headdesk> inducing, but my guess is that reality will kick in after a year or two and we’ll get a broader and more sensible set of skills priorities.  And there’s nothing wrong with better Labour Market Information, though I’m not particularly convinced that adopting all of Drummond’s recommendations will bring us to some kind of Labour Market Nirvana. (Short version, which maybe I should elaborate in a future blog: what Drummond mostly wants is backward-looking, which is great for economic analysis, not especially helpful for job-seekers or students looking to specialize).

But why do we need a new institution to do all this?  ESDC could fund experiments and analyses thereof.  Statscan could do the LMI stuff.  What advantage does a new institution necessarily have?  I’m not saying there are no advantages: the Millennium Scholarship Foundation is an example of an arguably unnecessary institution which nonetheless was responsible for some pretty interesting policy and delivery innovations.  But the advantages are uncertain and not well-argued in the report.

And there’s another issue.  The Council is keen that FutureSkills Lab be collaborative.  Super collaborative.  Especially with the provinces.  They really like the whole Canada Institute for Health Information (CIHI) model.  Well, the thing is, the federal government did try something similar a decade ago.  It was called the Canadian Council on Learning (CCL) – remember that? It was well-intentioned, but a political disaster because the feds set it up before actually talking to the provinces, leading the latter to essentially boycott it.  More to the point, CIHI works because it is responsible (in part) to the provinces, not just the feds.  If the Council recognizes the importance of this point, it is not evident in the report, which dances back and forth between saying it should “collaborate with” the Forum of Labour Market Ministers (i.e. with provincial governments) and saying it should be “accountable” to them.

I’ll stick my neck out on this one: “accountable to” will fly, “collaborate with” will not.  If the federal government is going to take up this idea from the council, it needs to make clear to the provinces within the next few days if not hours that this is going to be 100% CIHI clone, accountable to provinces and feds and not a federal creature collaborating with provinces.  If that doesn’t happen, regardless of the merits of more experimentation and better LMI data, this idea is going to be an expensive repeat of the CCL failure.  Federalism still matters.

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