Canada needs to embrace and speed ahead with a focused industrial policy to defend against the threats of the new geopolitical cold war, a national think tank says.
With COVID-19 accelerating trends that have shredded Canada’s previous and current approach to economic development and trade, developing an directed industrial policy needs to happen now.
“The evidence continues to accumulate that Canada needs an industrial strategy for the age of intangibles and increasing geopolitical competition,” says the New North Star 2 report issued by the Public Policy Forum.
“A patchy approach to economic policy will put Canada in the back seat and will ultimately hamper our standards of living.”
Robert Asselin, Sean Speer and Royce Mendes argue in the report that a new form of industrial policy, which they refer to as a “challenge-driven industrial strategy,” could equip Canada with crucial industries of the future. That would depend on the country developing an accepted set of industrial sector targets and then helping that area develop. Instead of supporting specific companies or regions, specific areas of technological and industrial development should be supported, with little or no direct funding to companies themselves.
Speer was an economic adviser to Prime Minister Stephen Harper, Asselin was an adviser to prime ministers Justin Trudeau and Paul Martin, and Mendes is executive director and senior economist for CIBC Capital Markets.
“Canada must leverage a mix of public and private research and development spending as well as a broader set of policy interventions to fuel commercial-oriented innovation,” the report stated.
With the United States and China locked in a showdown that is likely causing a profound “de-coupling” of supply chains between not only the two giant nations, but also much of the western world and China, Canada needs something different than its usual reliance on rules-based free trade, said the report.
“Canada cannot count on a liberal global framework, traditional sources of economic activity, nor the U.S. or China.
“Other countries are responding to these geopolitical trends by shifting from a laissez-faire approach to a national interest-driven model focused on key sectors and technologies based on national priorities and competitive advantage. To remain competitive, Canada must chart a similar course that advances its own interests.”
However, the authors don’t want Canada to follow the type of approach that brought the concept of industrial policy to general disrepute in both Canada and the rest of the industrialized world.
That was an approach in which certain key companies or industries were supported by preferential government action, but not by a co-ordinated, strategic approach to fields in which a country has comparative advantages and for which there appears to be great future potential.
It was an approach seen as “picking winners and losers,” which often led to decisions being made for political expediency and to reward vested interests.
Canada’s agriculture industry and history comes in for notice and praise in the report, with the successful development of canola held up as an example of public and private working together to create a booming commercial industry, as well as potential being noted for areas such as “genomics in agri-food.”
The authors note the past success of countries like the U.S. and Germany, and China’s success today, in developing strategic industries that they have come to dominate. Sometimes, they say, that can appear to be a manifestation of “picking winners,” but often it has been a deeper development of industrial technology and capacity, as in the invention of the internet and modern manufacturing.
Many governments have embraced “challenges” or developing industries they see as key to their future economies, including Germany’s with climate change technologies, and the U.K.’s with artificial intelligence, serving an aging population, clean growth and future mobility.
Canada traditionally does an excellent job with foundational research and early development, but then fails to successfully turn innovations into thriving commercial sectors. Often the successful companies leave Canada for better-organized locations like the U.S.
To improve the results, the authors propose Canada focus on concrete goals and then assemble the resources to achieve them. That should include retaining more of the foreign students trained in Canada, better connect public and private research, create an intellectual property strategy, and adopt a “whole of government” approach in which various ministries and agencies follow the same strategy and goals, rather than staying inside bureaucratic silos.
With focused research, development and commercialization, benefits should flow to Canada and help bridge the gap that some of Canada’s competitors have achieved.
“We may never reach our precise goal, but we will doubtlessly develop new and useful industrial capacities along the way,” says the report.
“That is basic insight of a challenge-driven industrial strategy.”