HESA

Higher Education Strategy Associates

Category Archives: Innovation

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.

September 15

Innovation Policy: Are Universities Part of the Problem?

We’re talking a lot about Innovation in Canada these days. Especially in universities, where innovation policy is seen as a new cash funnel. I would like to suggest that this attitude on the part of universities is precisely part of Canada’s problem when it comes to Innovation.

Here’s the basic issue: innovation – the kind that expands the economy – is something that firms do. They take ideas from here and there and put them together to create new processes or services that fill a market need in a way that creates value (there’s public sector innovation too but the “creating value” thing is a bit trickier, so we’ll leave that aside for now while acknowledging it exists and matters a lot).

Among the many places the ideas come from are higher education institutions (HEIs). Not necessarily local HEIs: ideas travel, so Toronto firms can grab ideas from universities in Texas, Tromso or Tianjin as well as U of T. The extent to which they will focus on ideas generated locally has to do not only with the quality of the local ideas, but also with the way the ideas get propagated locally. Institutions whose faculty are active and involved in local innovation networks will tend to see their ideas picked up more often that those who do not, partly because contact with local firms generates “better” scientific questions and partly because they will have more people paying attention to their work.

But ideas are really only a part of what matters in innovation. Does the business climate encourage firms to innovate? What’s the structure of business taxation? What kind of management and worker skill base exists? What regulations impede or encourage innovation? What barriers to competition and new entrants exist? What kind of venture capital is available? Does government procurement work in favour of or against new products or services? All of this matters in terms of helping to set firms’ priorities and set it on a more-innovative or less-innovative path.

The problem is, all this stuff is boring to politicians and in some cases, requires directly attacking entrenched interests (in Canada, this specifically has to do with protectionism in agriculture telecoms and banking). It requires years of discipline and trade-offs and politicians hate discipline and trade-offs. If only there were some other way of talking about innovation that didn’t require such sacrifice.

And here’s where universities step in to enable bad policies. They write about how innovation is “really” about the scientific process. How it’s “really” about high tech industries of the future and hey, look at all these shiny labs we have in Canada, wouldn’t it be great if we had more? And then all of a sudden “innovation” isn’t about “innovation” anymore, it’s about spending money on STEM research at universities and writing cheques to tech companies (or possibly to real estate companies to mediate a lot of co-working spaces for startups). Which as far as I can tell seems to be how Innovation Minister Navdeep Bains genuinely approaches his file.

Think I’m exaggerating? Check out this article from Universities Canada’s Paul Davidson about innovation in which the role of firms is not mentioned at all except insofar as they are not handing enough money to universities. Now, I get it: Paul’s a lobbyist and he’s arguing his members’ case for public support, which is what he is paid to do. But what comes across from that article is a sense that for Universities , l’Innovation c’est nous. Which, as statements of innovation policy go, is almost Nickelbackian in its levels of wrongness.

I don’t think this is a universal view among universities, by the way. I note SFU President Andrew Petter’s recent article in the same issue of Policy magazine which I think is much clearer in noting that universities are only part of the solution and even then, universities have to get better at integrating with local innovation networks. And of courses colleges, by putting themselves at the more applied end of the spectrum, are inherently aware that their role is as an adjunct to firms.

Universities are a part – a crucial part, even – of innovation systems. But they are a small crucial part. Innovation Policy is not (or should not be, anyway) code for “industrial policy in sci/tech things universities are good at”. It is (or should be) about firms, not universities. And we all need to remember that.

May 24

Innovation Policy: Beyond Digital and Cleantech

So, earlier this month, federal Innovation Minister Navdeep Bains wrote an op-ed in the Toronto Star which lays out, as clearly as possible, where the current government’s thinking is with respect to Innovation policy.  Some of it is good, but some of it is dreck.

Let’s start with the good stuff :

“Innovation is fundamental to our continued growth and job creation, and it’s impossible to predict where and how disruption will happen. It can be in a start-up garage in Vancouver, a mine in Saskatoon, or a fishery in Saint John.”

Ok, so the mining in Saskatoon reference is a little odd (there’s exactly one mine in the city, a salt mine which straddles the city limits) , but that aside the Minister seems to understand that innovation (that is, the act of creating new business processes so as to add value) is something that needs to happen economy-wide.  And it’s something that needs to be bred into companies’ DNA.  So far, so good.

What’s a bit disturbing, though, is how quickly Bains goes from “this is something everybody needs to do” to “we’re going to be great in digital! We’re going to invest in cleantech!” and other forms of highly sector-specific boosterism.  Now, I get that governments want to be seen as leading us all towards the industries of the future and reaping the political rewards of said leadership, but man there is some serious cognitive dissonance at work here.  You can’t simultaneously believe that innovation policy is an economy-wide thing and then start babbling about how you plan to plough money into specific sectors.

Bains seems to have difficulty distinguishing between “innovation policy” and “innovation sectors”.  There is a difference.  Innovation policy, as Dan Breznitz underlines here, should focus on helping new technologies and business models flourish.  By definition, this policy has to be economy-wide, because these new technologies and models don’t exist yet.   “Innovation sectors” is a jargon-y term (used much more in Canada than elsewhere if Google is any guide) meaning roughly “sectors which attract a lot of venture capital”, or in practical terms: ICT, cleantech and biotech.

To be fair, Bains isn’t alone: most governments in Canada have this problem.  This is why so many of their innovation policies are scarcely more than “Digital! Cleantech! Woo!”  And there’s nothing wrong (in principle) with in trying to promote digital or cleantech sectors.  But we have to come clean that doing so is industrial policy, not innovation policy.  Similarly, Science policy is not innovation policy.  Neither is growth policy, and neither are policies promoting entrepreneurship.  They all feed on one another. They all (in theory) can complement one another, but they are different.  And if you confuse them the result will be bad policy.

Like I said, pretty much everyone starts their innovation policy with “Digital! Cleantech! Woo!”  And universities and colleges are complicit in this because that’s the easiest way for them to get their hooks into whatever flood of money is going to come out of government when innovation talk gets going.  But the mark of good innovation policy is the extent to which it transcends this kind of simplistic formula.  Here’s hoping the Liberals figure out how to do this in the next few months.

May 18

Canadian B-Schools and Economic Growth

If there is one thing university Presidents desire, it is to be useful to society – and preferably to the government of the day, too.  After all, post-Humboldt, universities exist to strengthen the state.  The better a university does that, the more it will be appreciated and, hopefully, the better funded it will be.  So it has always struck me as a bit odd how little universities (an business schools in particular) have really done in order to help work on the causes of Canada’s perennially sluggish economy.

Canada’s fundamental economic problem is that outside the resource sector, companies struggle to reach scale.  Outside the oligopolistic telecoms and banking sectors, we are a nation of small and medium businesses.  Judging by the party manifestos in last year’s elections, many people like things that way.  Small businesses are good and deserving of lower tax rates, big businesses are bad and deserve to be taxed more heavily. 

The problem with this little story is that it is simply wrong.  Big businesses are crucial to innovation and hence to economic growth.  Big businesses are the ones that have the money to invest in R & D.  They are the ones that can make long-terms commitments to training employees (if you don’t think firm size plays a role in Germany’s ability to sustain its apprenticeship system, you aren’t paying attention). People may be rightly cautious about the power of capital and its influence on the political process; but that doesn’t mean we shouldn’t encourage the formation of large companies in the first place.  Ask the Swedes: their social democracy would never have existed without very large companies like Volvo, Saab and Ikea.

And so the key question is: why don’t we have bigger domestic companies in Canada?  Oh sure, we have the occasional behemoth (i.e., Nortel, RIM) but we don’t seem to do it in a non-ephemeral way, or do it across the board.  And when our companies do start getting big, they often sell out to foreign companies.

We can point fingers in a whole bunch of directions – one favorite is a lack of appropriate venture capital.  But to a considerable degree, it’s a question of management.  Universities like to talk about how they are teaching entrepreneurship but getting people to start businesses and getting those businesses to grow are two very different propositions.  We seem not to have a lot of managers who can take companies from their first million in sales to their first ten million in sales, or to take our businesses out of the Canadian context and into a global one (if you haven’t yet read Andrea Mandel-Campbell’s Why Mexicans Don’t Drink Molson, on this subject, do – it’s revealing).   And for that matter, how is it that our venture capital industry still seems more comfortable with mining projects than life science or biotech?

Can it be – say it softly – a question of education?

We pretend that success in innovation is a function of prowess in tech.  But to a large degree, it’s a function of management prowess: how can staff be better motivated, how can processes be changed to add value, how well can business or investment opportunities be spotted.  Might it be that the education of our business elite doesn’t include the right training to do these things? 

To be clear here, I don’t really have any evidence about this one way or the other.  No one does.  But if I were a university president, or a business dean, it’s a question I’d be asking myself.  Because if there’s an economic conundrum that needs solving its this one, and if there’s any way in which universities can contribute, they should.

May 03

Disturbing Portents for the Liberal Innovation Policy

Allow me to draw everyone’s attention to a piece last week in the Huffington Post called “How the Liberal Party Plans to Innovate the Way We Innovate”.  The piece was written by a Liberal-connected PR/GR flack named Greg MacNeil who works at “public affairs” (read: lobbying) firm Ensight Canada.

MacNeil starts by asserting that “following Budget 2016, it is clear that when it comes to the innovation agenda, the government’s intentions are substantive”, which is nonsense: the budget simply introduced a price-tag ($800 million for some tech clusters) and some placeholders.  He goes on to state: “the challenge in the past has always been that the various funding and program buckets have been siloed across government. The Liberals are changing that. This new one-window approach will make it easier for organizations to navigate the system and access the information and funding they need. The government believes that this approach can help expand the pre-existing innovation sector in Canada and subsequently grow jobs and investment.”

Question: Does anyone actually believe that the problem with innovation in Canada is that there is no one-stop shop for federal funding?  That the reason firms don’t spend their own money to innovate is because it’s not easy enough to suck money out of the federal bureaucracy?

Question: Does the phrase “innovation sector”, and the implication that innovation isn’t something that happens right across the economy, give you the screaming heebie-jeebies?  Could there possibly be a stronger signal that the government thinks of innovation only in terms of new product innovation?

More from MacNeil: “This innovation strategy will also play a major role in Canada’s multilateral and bilateral relations. Until now, Canada has been one of only a few G7 countries without a specific innovation strategy in place. Many other western countries not only have innovation strategies, but are regularly updating them on an annual basis”

Question: “one of only a few”…out of seven.  Doesn’t sound particularly out of the ordinary to me.  And why on earth does this matter to our foreign relations?  If we’d at any point wanted to put more money and effort into international scientific collaborations, we’d have done so by changing rules on council funding, not developing strategic plans.

MacNeil: “By coordinating these efforts, the government hopes that it will be better positioned to take on serious global issues impacting Canada and our allies in areas like climate change, the arctic and cancer research. Further, it could afford us an opportunity to invest in areas where we would be true pioneers, like quantum computing, as opposed to competing in areas that are already dominated by foreign countries.”

Wait – allies?  Are we only collaborating with NATO countries now?  “Invest in areas where we could be true pioneers as opposed to competing in areas already dominated by foreign countries”?  Interesting approach to industrial policy I suppose – but how does collaborating with other countries give us an advantage in blue ocean sectors?  By definition, wouldn’t our partners get a leg up in these areas, too? 

There is so much to question in this little tract: like, why is an external GR flack trial-ballooning innovation policy ideas on behalf of Liberal Ministers?  Why would anyone think a little bureaucratic rationalization would have an effect on innovation levels in the economy?  Do the Liberals really think that Canadians cannot successfully innovate and compete in areas where companies in foreign countries already work – that we can only “win” if no one is competing against us?  Do they have even the slightest sense that innovation is about more than new inventions?  And why – oh dear God why – does anyone think it is acceptable to write an entire article about innovation policy without ever using the words “firm” or “company” once?

If this really is the basis for the new Liberal innovation plan, we all ought to be very worried indeed.

April 12

Going Overboard on Basic Research?

I’m getting some worrying vibes from the new federal government.  It’s nothing I can directly put my finger on (other than some annoying Ministerial tweets last week which seemed to claim that any money put into PSE infrastructure is ipso facto about “innovation”) but I get the sense that the new government is in danger of making some real mistakes with respect to innovation policy.  Specifically, I’m worried that in the rush to repudiate the Harper legacy in all things science, they may end up with an innovation policy that takes us back to the naïve 1990s.

What do I mean by this?  Well, in the late 1990s, when the Chretien government began seriously investing in research (after having initially slashed the bejesus out of it in the 1995 Budget), their rationale went something like this: growth requires innovation, research is the wellspring of innovation, therefore:

      $ to universities for research → a miracle occurs → productive high-tech economic future

And on that not very sophisticated basis, billions were spent.

Now, without denying some good came from this, I think it’s fair to say that this is a pretty limited view of how innovation works.  For one thing, there’s an implicit suggestion that innovation is about “new discoveries” being turned into “new products”.  And while that is one type of innovation, it is far from the only one.  What about process innovations or business model innovations, to name but two?  Why focus on the “big breakthroughs” when so many incremental innovations are possible?  Why focus on only one part of the value chain (and possibly not a part Canada is particularly good at) when there is value in so many others?

To put this more bluntly, to assume that basic research is the only type of research an innovation policy should fund is crazy.  Serious countries understand this.  It’s the reason, for instance, that Germany, besides funding its universities and the Max Planck institute, also funds the Frauenhofer Institutes, which is one of the world’s greatest performers of applied research.

Over the course of the last few years there have been many complaints that the Harper government focused too much on applied research.  True, all granting councils (but especially CIHR) were pulled in the direction of having grantees justify their funding in terms of “immediate benefit” and finding commercial co-partners, etc, and for the most part this idea of injecting some “appliedness” into basic research funding was bad policy.  But the fact is that the actual amount we spend on research which is exclusively applied in nature – that is, Frauenhofer type-stuff, or programs like the Industrial Research Chairs – is actually pretty small.  The revamp of the National Research Council was a stab in a Frauenhofer direction – albeit a somewhat clumsy stab, with over-inflated expectations of quick success.  But now even that’s been thrown into question, the revamp now “suspended” pending the outcome of a review of the government’s review of its basic science policies. 

To be clear, it’s not that the government has yet made any definitive false steps.  But rhetorically it seems to be backing itself into a corner in terms of thinking of innovation exclusively in terms of basic research plus maybe funding some exciting business/university co-location spaces (an idea which I think we could also describe as being less-than-fully-baked, as I explained back here.  That would be a bad mistake.  What Canada needs is a full-spectrum innovation policy, one which doesn’t put all its eggs in the new discoveries/new products basket. 

Or, to put it another way: yes to basic research, but stools need more than one leg.

January 04

Innovation Buzzword Bingo

Morning all.  Regular service will pushed back one week to January 10th, but I couldn’t let the Globe op-ed “Southern Ontario Should be an Innovation Cluster, Not a Farm Team” by three Ontario university presidents (McMaster’s Patrick Deane, Toronto’s Meric Gertler, and Waterloo’s Feridun Hamdullahpur) go without comment.

The article reads like someone set out to fill a buzzword bingo card.  Words like “supercluster”, “resilient”, “enhancing interaction”, “external connectivity”, “cluster-building infrastructure”, and “entrepreneurship ecosystem” all duly make an appearance; hell, there’s even a reference to Michael Porter.  And while none of it is wrong, exactly – clusters are good, infrastructure never hurts, etc. – the six actual policy proposals the presidents lay out in terms of creating an innovation cluster are mighty thin.

1)  Invest in organizations that drive local economic development and quality of life, from civically minded governance bodies to cultural institutions.

In what way does this proposal differ from what governments already do?  Do governments everywhere not invest in cultural institutions and things that drive local economic development?  Are there things governments should stop doing in order to prioritize these things?  And how might one distinguish good from bad investments in cultural institutions?  When should the spending stop?

2)  Co-ordinate investments in research areas with both the highest success rates and strongest growth potential, from regenerative medicine to quantum science; from advanced materials to environmental technologies.

Co-ordinate how?  How is “success rate” measured?  Or “growth potential”?  Is this actually a plea to prioritize CFREF-type programs over granting council funding?  Or perhaps it’s a plea for granting councils to become more focussed in their funding?  A lot more detail should be here before anyone signs on to this principle.

3)  Ensure that our immigration rules make us a destination of choice for high-potential individuals.

think this is a plea for government to streamline immigration procedures, awkwardly phrased.  And, yeah, streamline away.  Can’t hurt.  But generally speaking, being a destination of choice has more to do with economic opportunities in a country than the state of its entry visa system.

4)  Turn taxpayers into equity partners and give the public a share of the upside.

Equity partners in what?  New companies?  Like Mariana Mazzucato wants?  Can anyone name a single successful innovation cluster where this happens?  Try to imagine how the public sector would behave if it had an equity stake in companies.  Imagine what it would do to pick or favour winners in order to maximize share value.  Imagine the pressure to “save” or “bailout” losers.  Imagine the chaos that would surround the decision to ever try to sell shares.  This is a half-baked nightmare of an idea, one which would effectively impose a form of Peronism on any emerging tech sector.  Does anyone truly believe this would make tech companies more successful?  Please.

5)  Support firms that can scale up by connecting them to successful mentors, addressing gaps in our venture financing systems, and leveraging public procurement strategically.

Can anyone point me to a single study that links firm size to quality or quantity of mentorship?  No?  OK, then.

6)  Inculcate a culture of risk-taking that rewards rather than penalizes failure, which fosters adaptability and learning from mistakes.

Can anyone point me to a single instance anywhere of a government successfully inculcating a culture of risk-taking in business?  No? Ok, then.

Like I said before, it’s not so much that these ideas are wrong (well, apart from the taxpayer equity stuff) as that they are painfully unspecific.  It’s great that universities are now at least couching their requests for more research funding in the context of an acknowledgement of innovation ecosystems, and not simply relying on the absurd formula of: $ for university research –> Black Box where miracles occur –> Innovation!

But in practice most of these recommendations either are not particularly workable or vague to the point of  being unhelpful.  Better innovation policy is going to require a lot more than this.

December 08

Innovation Ecosystems: Promise and Opportunism

We sometimes think of innovation policy as being about generating better ideas through things like sponsored research.  And that’s certainly one part of it.  But if those ideas are generated in a vacuum, they go nowhere – making ideas spread faster is the second pillar of innovation policy (a third pillar – to the extent that innovation is about new product-generation – has to do with venture capital and regulatory environments, but we’ll leave those aside for now).

Yesterday, I discussed why the key to speeding up innovation was the density of the medium through which new ideas travel: basically, ideas about IT travel faster in Waterloo than in Tuktoyaktuk; ideas about marine biology travel faster in Halifax than in Prince Albert.  And the faster ideas travel and collide (or “have sex” in Matt Ridley’s phrase), the more innovation is produced, ceteris paribus.

Now, although they don’t quite use this terminology, the proponents of big universities and big cities alike find this logic pretty congenial.  You want density of knowledge industries?  Toronto/Montreal/Vancouver have that.  You want density of superstar researchers?  U of T, McGill, and UBC have that (especially if you throw in allied medical institutes).  That makes these places the natural spot to invest money for innovation, say the usual suspects.  All you need to do is invest in “urban innovation ecosystems” (whatever those are – I get the impression it’s largely a real estate play to bring scientists, entrepreneurs, and VCs into closer spatial proximity), and voila!  Innovation!

This is where sensible people need to get off the bus.

It’s absolutely true that innovation requires a certain ecosystem of researchers, and entrepreneurs, and money.  And on average productive ecosystems are likelier to occur in larger cities, and around more research-intensive universities.  But it’s not a slam dunk.  Silicon Valley was essentially an exurb of San Francisco when it started its journey to being a tech hub.  This is super-inconvenient to the “cool downtowns” argument by the Richard Floridas of this world; as Joel Kotkin has repeatedly pointed out, innovative companies and hubs are as likely (or likelier) to be located in the ‘burbs, as they are in funky urban spaces, mainly because it’s usually cheaper to live and rent space there.  Heck, Canada’s Silicon Valley was born in the heart of Ontario Mennonite country.

We actually don’t have a particularly good theory of how innovation clusters start or improve.  Richard Florida, for instance, waxes eloquent about trendy co-working spaces in Miami as a reason for its sudden emergence as a tech hub. American observers tend to attribute success to the state’s low tax rate, and presumably there are a host of other possible catalysts.  Who’s right?  Dunno.  But I’m willing to bet it’s not Florida.

We have plenty of examples of smaller communities hitting tech take-off without having a lot of creative amenities or “urban innovation strategies”. Somehow, despite the lack of population density, some small communities manage to get their ideas out in the world in ways that gets smart investors’ attention.  No one has a freaking clue how this happens: research on “why some cities grow faster than others” is methodologically no more evolved than research on “why some universities become more research intensive than others”, which is to say it’s all pretty suspect.  Equally, some big cities never get particularly good at innovation (Montreal, for instance, is living proof that cheap rent, lots of universities, and bountiful cultural amenities aren’t a guarantee of start-up/innovation success).

Moreover, the nature of the ecosystem is likely to differ somewhat in different fields of endeavor.  The kinds of relationships required to make IT projects work is quite different from the kinds that are required to make (for example) biotech work.  The former is quick and transactional, the latter requires considerably more patience, and hence is probably less apt to depend on chance meetings over triple espressos in a shared-work-environment incubator.  Raleigh-Durham and Geneva are both major biotech hubs that are neither large nor particularly hip (nor, in Raleigh’s case, particularly dense).

It’s good that governments are getting beyond the idea that one-dimensional policy instruments like “more money in granting councils” or “tax credits” are each unlikely on their own to kickstart innovation.  It’s good that we are starting to think in terms of complex inter-relations between actors (some, but not all of which involve spatial proximity), and using “ecosystem” metaphors.  Complexity is important. Complexity matters.

But to jump from “we need to think in terms of ecosystems” to “an innovation agenda is a cities agenda” is simply policy opportunism.   The real solutions are more complex. We can and should be smarter than this.

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