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Does Canada have an innovation problem?

The federal government's 2022 budget pledges to create a Canadian Innovation and Investment Agency, support Canada’s innovation clusters and strengthen Canada’s Semiconductor industry. Although these are steps in the right direction, this is simply not enough to stay competitive in the 21st century.

The Information Technology and Innovation Foundation published a report in June 2022 that covers three years: 1995, 2006, and 2018. The report found that Canada has lost global market share in all seven advanced industries surveyed: pharmaceuticals; electrical equipment; machinery and equipment; motor vehicles; other transport equipment (e.g., aerospace); computers and electronics; and information technology and information services. Canada’s share of GDP output in advanced industries collapsed from 1.8 to 1.2 per cent in 2018. Its global share of computers and electronics output fell 57 per cent, while its share of motor vehicle industry share fell from 3.6 percent of world output to just 1.5 per cent. This leaves Canada behind many of its G7 counterparts.

The Conference Board of Canada’s Innovation Report Card from 2021 ranks Canada 10th among 16 peer countries, with Canada's innovation problems mainly resulting from a lack of Venture capital, Business R&D, Patents and Labor productivity. Experts have found that the lack of orientation to global competition, the absence of intense local rivalry and customers who were not demanding produced weak pressures for firm productivity and upgrading. This culture of complacency is simply unsustainable with volatile resource prices, changing demographics and increasing global economic protectionism threatening the country's high quality of life.

To secure Canadian competitiveness and innovation in the 21st century, the following policy changes should be enacted:

● Create a healthier business environment and more competition:

Canada received an A and Ontario an A+ on the The Conference Board of Canada’s Innovation Report Card. Canada’s entrepreneurial spirit should be nourished by government policies and societal attitudes that promote innovation and competition. Favorable tax rates and tax regime clarity, appropriate regulation and access to capital and expertise are all ways to nourish Canadian innovation.

Canada should negotiate with business leaders to make these changes a reality without interfering with the country's excellent social safety net. It should create and fund new pathways for entrepreneurs to access capital and expertise while continuing to invest heavily in innovation clusters.

Canada’s 1985 Competition Act should be amended to facilitate the introduction of new, innovative competitors to help circumvent Canada’s excessive bank fees, phone, grocery bills and housing prices. Ipsos found that (88%) Canadians say we need more competition. Experts agree that the government should foster more competition by opening the large segments of the economy currently insulated from competitive forces and improving regulations. It's time for

Canada to take the lead in facilitating increased innovation and fostering a more entrepreneurial culture.

● Increase tax incentives for R&D:

The Organization for Economic Co-operation and Development ranks Canada last in potential economic growth over the next 40 years. R&D plays a crucial role in fixing this trajectory by generating new ideas, technologies and efficient processes that contribute to overall innovation and productivity gains in the economy. Enhancing tax incentives for R&D would boost Canada’s incomes by bolstering innovation, productivity, and competitiveness. Canada currently ranks 16 of 34 countries in R&D tax generosity.

● Address Brain Drain:

Research shows that many of Canada’s best and brightest minds leave Canada for the United States because of a combination of higher wages, lower taxes, better opportunities and a stronger dollar. With brain drain comes a lack of innovation and entrepreneurship. Legislation should be passed that protects against Canadian Experience employer requirements: a provision which keeps Skilled immigrants in Canada in a state of high underemployment and unemployment on account of their foreign credentials and experience being invalid. Language, communication barriers, and discrimination further add to newcomers' difficulties in accessing high paying opportunities. Banning this requirement will fix labor shortages, increase innovation and secure Canada’s economic well being.


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