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
(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.