Cast your mind back, if you will, to the magical days of 2021-22 when Canada still cared about things like innovation and a huge debate raged about how to do it properly, so that for once Canada might not be dead last in the OECD for things like productivity growth. 

Basically, there were two camps in this debate. One said that the way to achieve it was to copy the American system of ARPAs (Advanced Research Projects Agencies, of which the OG is the famed Defence-focused version known as DARPA), which has a tremendous record of producing amazing world-changing technology such as the internet, GPS and mRNA vaccines among many examples. It was very much a swing-for-the-fences approach one which might produce the occasional whale of an idea, which might improve the whole world (as with the internet) but to which direct financial benefits might be concentrated in whatever small group of firms that had moved to develop the technology. 

The other approach said no, that’s ridiculous, literally none of the enabling conditions which have allowed ARPAs to succeed in America hold in Canada. I was in that camp, and laid out the case against CARPA here. I and others argued in effect that a project which focused resources on a limited number of product innovations might create one or two national champions, it was unlikely to have an economy-wide effect on productivity. For that, you would need something that would raise the knowledge-intensity of industries more widely and perhaps focus on process innovation as much as product innovation. This other option—let’s call it the Tekes option after the Finnish innovation agency which provided its inspiration—was definitely not swing-for-the-fences. It was the epitome of small ball. But done properly, this approach might have far-reaching effects, as it did both in Finland and in Israel.

In the fact of these two ideas the Liberals, predictably, vacillated. In their 2021 manifesto, they went for the American approach and promised a couple of billion dollars for—wait for it—“CARPA” (Canada Advanced Research Projects Agency). But by early 2022, they changed their mind, in no small part due to the work of the Finance Department’s visiting economist (and U of T prof) Dan Breznitz, and the 2022 budget ended up announcing something that sounded a whole heck of a lot like Tekes. 

So it was settled then? Not so fast. The Tekes thing never really got out of the gate. After announcing it in the Budget, the idea got lost in the Ottawa swamp of “consultations.” The Liberals couldn’t decide if this was a replacement for or an addition to the National Research Council, and after a year and a bit of arguing about it, they just kind of threw their hands up and said “we’ll do it in 2025,” which by that time was code for “let the Conservatives come up with something.” Times have changed, of course and we might have to have this debate again.

But one big thing has changed in the meantime; namely, that Cheeto Jesus, the malignant narcissist, is once again President of the United States, and he seems to be homing in on the idea that Canada should play Zelensky to his Putin. And what that means is suddenly Canada is going to be in the market for a whole lot of new and non-American defence equipment.

Why does this matter for innovation policy? Well, one of the key enablers for DARPA in the United States is that in effect it is a forward purchasing arm of the US military. Its research projects are a laundry list of cool whizzy things that the military might like to but 20 years from now, once the technology is available. DARPA’s job is to issue contracts to firms that might make such technology to work out if the ideas are in fact practicable and if so, at what cost. For that to work requires two things: first, a large set of domestic firms whose internal research & development capabilities are in fact advanced enough to do the necessary research; and second, a government procurement set-up which is large enough to credibly signal that if someone actually develops such technology that it will pay money—big money—to buy that technology. Research companies don’t simply do the work for the value of the contract, they do it because they think they might get filthy rich on the after-contract development of technologies.

And this was always the Achilles heel of the pro-CARPA folks. Amidst all the talk about imitating a strategy which developed GPS, the internet, mRNA vaccines, etc., it was hard to imagine a similar use-case for Canada because our federal government doesn’t buy anything in the quantities the US military does. And to the extent we do buy stuff, proven, off-the-shelf technologies are usually good enough (fortunate, because our current risk-averse procurement systems would likely die of conniptions if they had to buy speculative technology). No procurement, no successful CARPA.

(This is not unique to Canada, by the way. Almost nowhere other than the US is the condition of a deep-pocketed targeted procurement system met, which is why none of the countries who have tried to copy DARPA have ever really made it work.)

But our current situation with the US changes things. We are going to have to buy a lot of defence gear soon, and we aren’t going to be able to go off-the-shelf precisely because that usually means “buy American.” We’re going to have to accelerate the production and adoption of drone tech and radio jamming technology unbelievably quickly. Production of civil defence gear will need to go into overdrive. Etc. etc. In other words, the federal government is going to have to become a very large consumer, very quickly. And that means that one of the big arguments against CARPA disappears.

This is not to say that the argument has now turned decisively in favour of a CARPA. As I wrote back here, when these debates were raging a few years ago, DARPA’s success was down to a particular entrepreneurial culture which is difficult to imagine in Canada. We still don’t possess a whole lot of companies who are technologically sophisticated enough to create a competitive market for CARPA projects (yes, presumably the creation of CARPA might lure new firms into the market, but that takes time and an appetite for risk for which the Canadian private sector is not exactly world-renowned). Those will still be good reasons why a CARPA approach might fail. But if the Government of Canada is serious about defence, and it can change its procurement system to be pro- rather than anti-risk (and to be fair, the urgency of our defence needs might dictate that we first try off-the-shelf European or Korean or Israeli solutions), then one of the key arguments against CARPA disappears.

Something for the next government to think about, anyway.