Let’s stop talking about innovation and start talking about what really matters – Blog 13

3 November, 2017 – BLOG #13

By Guest – Richard Hawkins PhD, Professor, University of Calgary, and THECIS Senior Fellow

Let’s stop talking about innovation and start talking about what really matters

Following some 30 years of investigating “innovation” as a social and economic phenomenon, it is time for me to admit that I am getting fed up with this term. In the conversation about public policy for science, technology, industry, higher education or what have you, I fear that it is now so far adrift in a sea of mythology that has lost all touch with reality. Its usefulness began to be sabotaged long ago by waves of boffins, hucksters, on-the-make journalists, and political opportunists (aided and abetted by not a few like-minded academics), all of whom bought hook, line and sinker into a narrowly tech-centered vision of how economies work. But the term now obscures more than it illuminates. It is high time for us to reset the conversation. Because the existing one is taking us nowhere in terms of meeting the urgent new challenges Canada faces in sustaining prosperity in an increasingly uncertain world.

A good example of why we need to wipe the slate is the Innovation Supercluster Initiative (ISI) announced in the 2016 Federal Budget and now getting underway. “Innovation” appears 51 times in the terms of reference for this program. Except as part of the name of the sponsoring Ministry, it is hardly ever used once to refer to the same thing. So in a scant thirty pages we read about innovation, innovating, innovation superclusters, innovation eco-systems,  innovation players, business-led innovation, innovation hotbeds, private-sector-led innovation, innovation partners, broader innovation ecosystems, gaps in the innovation eco-system, access to innovation, collaborations of innovation ecosystem players, dynamics of innovation ecosystems, innovation advantage, local innovation ecosystems, innovation assets, innovation spurs, innovation points of contact, innovation cluster regions, platform technology innovation, innovation funding environment … the list well exceeds my attention span. And when “innovation” is then linked up with science, R&D, IPR, skills and training, universities and so forth – well, calculating the national accounts in Roman numerals is easier than trying to make sense of this chaotic conceptual soup.

And here is the rub. The goal of the ISI is not really “innovation” at all. The goal is to stimulate sustainable growth and employment. The assumption is that this will follow from investments in something called innovation. But this is an extraordinarily simplistic view of how innovation might contribute to this outcome. To be sure, innovation affects jobs and growth. But the nature and extent of this contribution is notoriously difficult to isolate, map and measure. Doing so is reliant almost entirely on inferential proxies of mostly indirect and non-exclusive relationships. In less than careful hands they lead easily to completely wrong-headed conclusions.

But jobs and growth stem also from a host of other factors that are far easier to define, and that can be mapped, monitored and measured using far more robust and reliable economic and social indicators: factors like company formation, networking, human capital formation, technology adoption, spillovers, diversification and trade composition, to name but a few. Moreover, many of these factors are explicitly or implicitly contained in the ISI terms of reference already. So why focus a program on something you can’t even define, let alone assess, rather than on something you can?

Confronting this question is important because, in many respects, the ISI represents significant progress over the dreary parade of cookie-cutter programs that have over-populated the ‘innovation system’ real estate for so long, and to such minimal effect. The key difference is that the ISI is not just another set of tech-centered research subsidies, although it is not clear that the government fully realizes the implications of this difference. Rather, in the prosaic disguise of “clusters” (another slippery concept) – lurks what in most of our competitor jurisdictions would be immediately recognizable as industrial policy.

This is something we have seen practically none of in Canada since the heady days of Trudeau Père. For some reason the concept has become taboo – curious as we used to be rather good at it. But as I hear howls of protest swelling up, let me be clear that I am not referring here to PetroCan, or the Bricklin. I refer instead to the marshalling and coordination of public and private resources with the objective of stimulating the creation of new industries that are built specifically around the introduction of some significant new economic factor – like a new technology, process, practice or resource – that has the potential to transform how an economy creates wealth. This is not some radical new notion. Virtually no significant new wave of technology or industry has ever taken hold except through very close interaction between the public and private sectors. Get this wrong and you get the Great Newfoundland Cucumber Disaster. Get it right, and you sometimes get Silicon Valleys.

The positive thing about the ISI is that it is not just about inventing new stuff. Rather, it contains several specific mechanisms to build up key business infrastructures and networks, for example between public and private sector institutions, and between large and small companies. Unlike most existing policy measures, it appears to be focused on building industries rather than just supporting companies: essential if productive and competitive new domestic industries are to be sustained over the longer run.

OK, now for the downside. Such strategies only work if actively supported and financed in significant measure on very protracted time scales. Still no indication of much Canadian skin in that game. A budget of $950 million over five years divided up among five or more consortia is hardly going to incubate sustainable superclusters “at scale” as the bumf insists. This whole amount is roughly what a single company at the bottom end of the global R&D super-league would spend on that activity in any given year (Bombardier is currently Canada’s only placeholder in that league). It costs more than that to put a single new automobile model into production. What we have in the ISI is a small-scale demonstration project; a worthwhile experiment, not an economic strategy.

So how does this fit into my argument that we should kick “innovation” out of the policy discourse? Well, first recall that the main concern of governments is not science or technology, but growth and jobs. That is what gets them elected or defeated. The miscues set in when these outcomes become too directly associated with the production and exploitation of science and technology. For the simple reasons that these are among the most difficult factors to predict or control, and that many other more predictable and controllable factors also play into growth and jobs. It is worrisome that in his public statements about the ISI the Minister continues to see the technological elements of the program as the economic drivers, rather than the institutional, networking and business dimensions, which are far more critical for success.

And success is imperative. Currently, Canadian growth is leading the OECD region, and employment trends are positive. But these figures are not being driven by the emergence of dynamic new globally competitive domestic industries. They are driven by consumption, fueled by staggering amounts of consumer debt, and still underpinned largely by resource exports at very low levels of value added. So, the crucial issue for policy is not really creating growth and jobs as such, but sustaining them over the longer term.

Now consider how “innovation” became linked to this problem in the first place. It was introduced originally as a way of explaining economic development: how changes in the ways economic activities are conducted can yield new types and sources of economic value, over and above what would be produced with existing means. That in a nutshell is what our old friend Prof Schumpeter was on about with “creative destruction”. And this basic idea is still the only robust and empirically verifiable conceptual linkage between innovation and the economy. But all it predicts is the existence of a tractable process whereby new sources of wealth can be created through the introduction of new economic factors, and/or their combination with other factors, whether new or existing.

One would be hard pressed to explain growth unless one introduced some dynamic mechanism of this kind. Without it, all that happens is that existing wealth gets redistributed – until eventually the sources of that wealth are degraded or depleted. The problem is that this core observation eventually became associated almost exclusively with the invention and implementation of new technology.

Make no mistake, technical change is an enormously powerful phenomenon. The problems for economic policy start when the focus becomes technology itself, rather than what happens when some new factor combination is introduced. For growth and jobs to be created, it is never sufficient just to invent new stuff, or, for that matter, even to put it on the market. New technologies are commercialized every day and the dirty little secret is that few of them ever amount to anything. Individually, they create little if any wealth and sustain no employment. It is the cumulative long run dynamics of technical change at a whole economy level that does that.

So rather than focusing on producing more technology, or any other new factor, we should focus instead on how sustained economic value can be created both from transforming existing factor combinations, and from adding new ones. And to do this we must look more seriously at this mysterious phenomenon called entrepreneurship. Whether centered at an individual or organizational level, this refers to the very human-centered activity of fomenting change in the social, cultural, economic and even psychological environments in which life is lived, wants and needs are expressed, and the dynamics of supply and demand are played out.

Without entrepreneurship, no discovery will find expression in practice and no technology will have a chance to gain traction in the market. Indeed, it is typically entrepreneurship, and the new opportunities that it illuminates, that drives discovery, ingenuity and invention in the first place, not the other way around. And in the commercial arena, this depends not on the technology, or on any other factor, but on the business acumen of entrepreneurial firms, and on the milieu of institutions and rules in which they operate.

So really the task for governments in transforming their economies such that jobs and growth are not held hostage to declining industries is rather straightforward. First ensure that opportunities emerge for entrepreneurs to establish new kinds of economic activity in as many ways and in as many domains as possible. And then ensure that a fair number of them succeed – for example through many of the potentially industry-building measures contained in embryo in the ISI. But for the most part it simply involves ensuring that the rules governments make on many interconnected fronts allow for the kinds of new combinations discussed above to emerge, take root and prosper. And often this means getting out of the way, or not unduly favoring incumbent or legacy enterprises over new ones.

You can call this “innovation” if you want to, but you don’t have to. And there are huge downsides. First it is redundant. If the above scenario plays out, then, by definition, you have “innovated”. Job done – an innovation is an outcome, not an input. Second, it encourages governments to continue putting the cart before the horse: to divert attention from producing measurable results in terms of increased welfare, and to reinforce the myopic perception that this happens merely by producing more science and commercializing the result. And third, it lets governments off the hook. If the economy fails to grow and jobs decline in quantity or quality, blame can be cast on the lack of some nebulous ‘culture’ of innovation, rather than on the host of real factors that are much more likely to be directly related to that outcome and that fall much more directly within the competence and responsibility of governments to address.

If we fail to put these elements into perspective, promising experiments like the ISI have little chance of having much impact. Their objectives will become mired once again in actions aimed at achieving some abstract and intractable state of “innovation”, rather than on a concrete, tractable state of prosperity. In short, it is time to stop concerning ourselves with what governments are doing to promote innovation, and focus instead on what they really want to achieve and whether they achieve it. We should start imagining ways of designing policy that is predicated on definable welfare outcomes and on rigorous analysis of all the factors that might lead to it and how, including advances in knowledge and technology.

A ’cluster’ or ‘supercluster’ is never a prerequisite for creating new industry. It is something that you end up with once new industry begins to flourish and starts to create new value-chains, new supply networks and new pools of human capital. Let’s focus our efforts on making sure this can happen. Innovation will follow along soon enough.

 


Another way to develop innovation policy? Blog #12

17, October, 2017 – BLOG #12

Another way to develop innovation policy?

At a meeting I was at recently, Gandeephan Ganeshalingam, the Chief Innovation Officer for GE Canada, described their view of the business environment using the acronym “VUCA”.  This stands for volatile, uncertain, complex, and ambiguous. This is clearly a very challenging environment in which to operate.

Now think about how innovation policy has traditionally been developed.  Often there is a commission (such as the Jenkins Report, that studied Federal support for research and development) that studies an issue, and issues a report with recommendation.  This is often followed by extensive period of consultation with various stakeholders.  Then a policy is announced, sometimes legislation is proposed, and then the policy is implemented.  This process often takes many months if not years.

So how likely is it that an innovation policy will work for a company in a VUCA world? Good question!

There is another way to develop innovation policy. In recent years a movement has started (particularly in the UK) to use an experimental approach based on small randomized controlled trials.  The approach is straightforward:

  • Set up pilots to experiment with new programs. One randomly selected group gets the new program, another randomly selected group doesn’t.
  • Evaluate them using rigorous methods.
  • Scale up those that work, stop those that don’t work.

Randomized controlled trials (RCTs) have been used in a number of policy areas such as development (by the World Bank), education and social policy. They are the gold standard for evaluating new drugs and medical procedures. In all of these areas the link between an intervention and desired outcomes is uncertain because no adequate theory exists. RCT’s provide empirical evidence whether an intervention actually works or not, and provide a strong evidence base for a new policy.  As one of the reports says, it replaces reliance on ‘eminence, charisma, and personal experience’ with evidence of what actually works.

RCTs haven’t been used much for developing innovation or entrepreneurship policy, but there is a large potential for exploring its use in those fields.

RCTs, like all new tools, have their strengths and limitations, and require expertise to be used effectively. They won’t be used across the board, just in a few selected areas. A key strength is that they can provide empirical evidence for a new policy, and minimize influences of ideology or history.  One weakness is that they don’t explain why an intervention works, only if it does or not.

It is interesting to note that when randomized controlled trials were introduced in medicine, they were strongly opposed by some clinicians, many of whom believed that their personal expert judgement was sufficient to decide whether a particular treatment was effective or not.  However randomized controlled trials are now regarded as the gold standard for medical evaluations.

Nesta – a UK charity that supports innovation – has developed an introductory guide for using randomized controlled trials. It is available at http://www.nesta.org.uk/publications/running-randomised-controlled-trials-innovation-entrepreneurship-and-growth

Governments at all levels in Canada spend a great deal of money supporting innovation and entrepreneurship. Randomized controlled trials can be another tool in the tool kit to make sure that we get the best possible outcomes. There is very significant expertise in the medical community to draw on to assist this endeavor.

Peter Josty

p.josty@thecis.ca
403-249-0191
www.thecis.ca

 

 


THECIS Cumulative Projects

Project List as of January 2017

 

Global Entrepreneurship Monitor [GEM] project. 2013-2015

THECIS took the lead to create a cross Canada team and secure funding for GEM studies in Canada as well as in BC, Alberta, Saskatchewan, Manitoba, Ontario, Quebec and Newfoundland. This project will produce 20 GEM reports when completed:

  • Canada – three reports
  • Alberta – three reports
  • Ontario – three reports
  • Quebec – three reports
  • British Columbia – one report
  • Saskatchewan – one report
  • Manitoba – one report
  • Newfoundland – one report
  • Nova Scotia – one report
  • Atlantic Canada (four provinces) – one report
  • Women’s entrepreneurship – one report
  • Entrepreneurship at the university of Calgary – one report

 

Nanotechnology Road Map implementation project, starting summer 2012

A best practice for developing road maps is to spend the time necessary once the road map is completed taking it to all the main stakeholders and interest groups to secure their understanding and buy in for the Road Map.

 

Nanotechnology Roadmapping project, 2011-2012

Following on from the previous project, nanoAlberta has asked us to develop road maps for the most promising applications for nanotechnology in Alberta. This involves a collaborative effort among all the stakeholders, in industry, government, university and NGOs.

 

Impact of nanotechnology in Alberta, 2010/2011

NanoAlberta asked us to identify the major applications for nanotechnology likely to have commercial impact by 2020 and to develop a road map and action plan for realizing the benefits to Alberta.

 

InnoWest 2004, 2005, 2006, 2007, 2009 and 2010

InnoWest is the western Canadian Innovation Conference. THECIS has organised this event since 2004, and it has become an annual event, with steadily increasing attendance from across western Canada and beyond.

 

Science to Society Workshop 2004, 2005, 2006, 2007, 2008, 2009 and 2010

This event is organised to provide business information to 50- 70 graduate students in science, engineering ICT, health and agriculture. It takes place at a weekend on October in Banff.  Support has come from iCORE, Alberta Ingenuity, AHFMR, the Alberta Agricultural Research Institute, NSERC Prairies and the governments of Alberta, Saskatchewan and Manitoba.

Ingenuity 601 [Graduate Innovation Course], 2007, 2008, 2009 and 2010

This project, carried out for Alberta Ingenuity, is to develop and deliver a learning experience to graduate students in Alberta to acquaint them with the basics of business concepts and give them experience working on  a business related project in a multidisciplinary environment.  The delivery of the Course in the Fall of 2007 is supported by the CRTCAC  [Calgary Regional Technology Commercialization Advisory Committee] and in 2010 by Alberta Innovates – Technology Futures.

 

Health Research Translation Project, 2009

This course is modelled on Ingenuity 601 but targeted at graduate students in medical, health and biosciences and related fields such as medicine, nursing, rehabilitation, life sciences and biomedical engineering. The course is supported by CRTCAC  [Calgary Regional Technology Commercialization Advisory Committee and AHFMR

 

Second Banff Innovation Summit, 2008

The theme of the second Banff Innovation Summit was “The resource industries as engines of economic diversification”. The Summit took place in September, with about 30 senior individuals from industry, government and university from the four western provinces. The Summit was supported by Western Economic Diversification, the Alberta government, iCORE and NSERC Prairies.

 

Pathways Project, 2008

Industry Canada asked us to review the various pathways that knowledge travels from university to business in Canada, and provide examples of each type of pathway identified.

 

International Comparison Review, 2008

This project developed an analysis of the policies being pursued in different countries to encourage industry-university collaboration; assessed the various strengths and weaknesses of various national approached; provided a critical assessment of the organizational structures of universities that underpin university-industry collaboration; and identified best practices and principles. This was for Industry Canada.

 

ICT Sector Performance in Alberta, 2007/2008

This project, supported by Alberta Advanced Education and Technology, is a follow on from the Alberta Innovation Scorecard project. It aims to answer two questions: How is the ICT sector performing in Alberta?  How is the government doing supporting the sector?

 

Foresight Scoping Workshop, 2007

This was a foresight exercise to identify applications that may emerge from the convergence of nano-technology, biotechnology and ICT. It is initiated by the Office of the National Science Advisor and supported by Agriculture and Agri-Food Canada, the Canadian Biotechnology Secretariat and CMC Microsystems.

University Business Collaboration, 2007

This project is a critical review of the literature on how university researchers collaborate with industrial firms, and how those relationships can result in commercial products. Supported by Industry Canada.

 

Interprovincial Trade in the Oil and Gas Industry, 2007

The Standards Council of Canada asked us to carry out a project to determine if there were any barriers to interprovincial trade in the oil and gs industry that were caused by standardisation factors.

 

What can we learn from clusters? 2007

This project, for the Alberta ICT Council, aims to identify learnings from the ISRN [Innovation Systems Research Network] research on ICT clusters across Canada which are relevant to the Alberta ICT sector.

 

Saskatchewan Innovation Scorecard 2006

The Saskatchewan Innovation Scorecard project was funded by the Saskatchewan government, Western Economic Diversification and NRC-IRAP. It aims to portray the state of innovation in Saskatchewan and compare it with benchmark jurisdictions.

 

First Banff Innovation Summit  2006

The goal of turning Western Canada into a dynamic, diversified and internationally competitive knowledge-based economy must be supported with policies and strategies that take account of both leading-edge ideas and local knowledge about how to assess and improve innovation performance.

The Banff Innovation Summit brought together 30-40 carefully selected industry, policy and academic stakeholders in economic diversification and innovation will interact with an elite international group of experts who are producing leading-edge ideas and knowledge concerning innovation policy and strategy. A speaker from the OECD in Paris provides the keynote address. The Summit was funded by a number of organisations, including the Governments of Canada, Saskatchewan, Alberta, and BC, and the University of Calgary.

 

Feasibility Study for a Seraphim Fund and Virtual Angel Support System  for Western Canada  2006

One of the problems holding back innovation in western Canada is the shortage of early stage funding. This project addressed that problem by carrying out a feasibility study for a new form of virtual angel network. The project was funded by NRC-IRAP.

 

Alberta Technology Report 2006

THECIS partnered with Ernst and Young and Ipsos Reid to prepare the 2006 edition of the Alberta Technology Report. The project was funded by Alberta Innovation and Science, Western Economic Diversification xxx. It involved a survey of CEOs of high tech firms to identify the state of the sector.

 

University Research Park Vision and Conceptual Masterplan, 2005

THECIS worked with a consortium of firms of architects to develop a Vision and Conceptual master plan for the rejuvenation of the University Research Park. This was done for Calgary Technologies, the University of Calgary and Alberta Infrastructure.

 

Alberta Innovation Scorecard 2005

The Alberta Innovation Scorecard was a direct follow up to the earlier project on developing new economic measures for Alberta. The Alberta Innovation Scorecard was developed using a consultation process with a team from the project sponsors [Western Economic Diversification, Alberta Innovation and Science, and NRC-IRAP]. The Scorecard was released publicly and is available on the THECIS web site.

 

Health Innovation 2005/2007

This project was funded by a private Calgary based Foundation. It was a year long study of the health industry in Alberta, to identify the main characteristics of the industry and celebrate its successes. The results of this work were disseminated across Alberta by a series of workshops in major centres organised by THECIS.

 

Innovation System data Initiative 2005/2006

Policy makers often need better and more timely information than is currently available from Statistics Canada. This project – supported by Alberta Innovation and Science, Western Economic Diversification and NRC-IRAP – addressed this need by sending a graduate student to Ottawa and supervising him to obtain information of value to the project sponsors.

 

Calgary Innovation Clinic 2004

Industry Canada and Western Economic Diversification asked THECIS to organise an Innovation Clinic in Calgary. This involved having two high tech CEOs being interviewed before a live audience to describe the factors leading to their success. The interviews were recorded and have been made available across Canada in DVD format by Industry Canada.

 

Return to Community – the Impact of the University of Calgary on its Community. 2004

The University of Calgary asked THECIS to prepare a report showing the impact the University has on the community. This report was subsequently used in discussions at the university Senate and by other bodies.

 

Feasibility Study for a wet lab facility at the Edmonton Research Park

THECIS was asked to join a consortium of architect firms to prepare a feasibility study for this facility. The main THECIS role related to developing the business case for the facility. Subsequently the facility was approved and is under construction.

 

Annotated Bibliography: Innovation in the Prairie Provinces 2003

Industry Canada in Saskatoon asked THECIS to prepare an annotated bibliography of papers written about innovation in the prairie provinces.

 

External Technology Audit of AACI Program, 2003

The Alberta Energy Research Institute asked THECIS to carry out an external audit of one of their major technology programs to determine how effective they were.

 

New Economic Measures for Alberta 2003

This major project for Alberta Economic Development was to develop a set of metrics to measure the effectiveness of the Provinces new economic development plan. It involved participation of members from several different Alberta ministries.

 

Briefing Paper for a conference on Receptor Capacity 2003

Calgary Technologies asked THECIS to prepare a briefing paper relating to a  Canadian conference on receptor capacity held in Toronto.

 

Paper on Industrial Research, 2002

This project, for Alberta Innovation and Science, was to prepare a paper for discussion at the Ministers of Science and Technology from across Canada.


THECIS Funding

THECIS is funded on a project basis by a variety of organizations.  Since 2001 the following have provided financial support through contracts or grants:

 

Federal Government Departments and Agencies

  • Western Economic Diversification Canada;
  • ACOA  (Atlantic Canada Opportunities Agency);
  • Industry Canada – Ottawa;
  • Industry Canada – Saskatoon office;
  • Office of the National Science Advisor [ONSA];
  • ISED (Innovation Science and Economic Development Canada;
  • Canadian Biotechnology Secretariat;
  • Agriculture and Agri-Food Canada;
  • Standards Council of Canada;
  • National Institute of Nanotechnology [NINT];
  • National Research Council –Industrial Research Assistance Program [NRC-IRAP];
  • Federal Partners in Technology Transfer [FPTT];
  • Business Development Bank of Canada; National Science and Engineering Research Council – Prairies Region;
  • International Development Research Centre [IDRC]

 

Provincial Government Departments and Agencies

  • Alberta Economic Development;
  • Alberta Innovates – Technology Futures;
  • Alberta Finance and Enterprise;
  • nanoAlberta;
  • Alberta Innovation and Science;
  • Advanced Education and Technology;
  • Alberta Sustainable Resource Development;
  • Informatics Circle of Research Excellence [iCORE];
  • Alberta Agricultural Research Institute; Alberta Innovates – Health Solutions;
  • Alberta Energy Research Institute;
  • Alberta Research Council;
  • Alberta Ministry of Agriculture Food and Rural Development [AAFRD];
  • British Columbia Ministry of Advanced Education;
  • Saskatchewan Industry and Resources;
  • Enterprise Saskatchewan;
  • Manitoba Science, Technology, Energy and Mines;
  • Government of Newfoundland and Labrador;
  • Government of Ontario;
  • Innovation Saskatchewan

 

Foundations

  • International Health Business Opportunities Conference Foundation
  • Alberta Ingenuity Fund;
  • Alberta Heritage Foundation for Medical Research [AHFMR]
  • Canadian Youth Business Foundation [CYBF];
  • Futurpreneur Canada

 

Other Funders

  • Calgary Technologies Inc.;
  • University of Calgary;
  • Ryerson University
  • TEC Edmonton;
  • The Evidence Network;
  • University of Alberta, Faculty of Extension
  • AVAC Ltd.   Alberta Chamber of Resources;
  • Genome Prairie; Genome Alberta;
  • CMC Microsystems;
  • Pfizer Inc., Nexen Inc.;
  • Merck Frosst Canada Ltd.;
  • Ernst and Young LLP;
  • Alberta Treasury Branches;
  • Institute of Chartered Accountants of Alberta
  • Certified Management Accountants of Alberta;
  • Calgary Regional Technology Commercialization Advisory Committee [CRTCAC]
  • APEGGA Association of Professional Engineers, Geologists and Geophysicists of Alberta;
  • Institute of Chartered Accountants of Alberta
  • University of Manitoba, Stu Clark Centre for Entrepreneurship

 


Report cover for GEM Canada 2016

GEM Canada 2016 report summary

25, June, 2017 – BLOG #9

GEM Canada Report 2016

GEM (Global Entrepreneurship Monitor) is the largest study of entrepreneurship in the world.  THECIS manages the GEM project in Canada.  The latest GEM report for Canada has just been issued.  It is available at http://thecis.ca/index.php/gem-2016/       It shows that there is a very strong entrepreneurship culture in Canada, and the rate of early stage entrepreneurship (TEA -Total Early stage Activity) is the highest in the developed world.  GEM data is widely used as evidence for evidence based policy by such groups as the UN, OECD, World Bank and World Economic Forum.

Some of the highlights from the report are:

  • Almost 60% of the adult population see good opportunities to start a business in the next six months;
  • Over 50% also have confidence in their skills and knowledge to start a business;
  • No more than 44% are inhibited by fear of failure.
  • 7% of the adult population is involved in early stage entrepreneurship, the highest rate in the developed world, ahead of Australia and the US.
  • 8% of the adult population in Canada is involved in an established business (one more than 42 months old), a lower rate than in Australia or the US.
  • In terms of intrapreneurship (entrepreneurship in large organizations) Canada’s rate is 6.5%, that ranks us 12th among developed countries.
  • A significant number of startups have major growth plans. Twenty percent expect to create 20 or more jobs within five years.
  • In common with most other developed countries, the largest sector for entrepreneurship (48%) is consumer services, closely followed by business services.
  • A significant minority of startups export. 20% of them project from 25% to 75% of revenue from export, and 13% anticipate more than 75% of revenue from export.
  • A significant minority of startups offer innovative products or services (9%-14% depending upon the questions asked.
  • 17% of startups use technology available only in the least year, an indicator of innovativeness.
  • The age group with the highest TEA was the 25 – 34 age group, at 22.3%.
  • The rates decline sequentially for the 35 – 44 group, the 45 – 54 group, and the 55 – 64 age group. The TEA rates decline reaches 10.7% among the 55 – 64 cohort.
  • Approximately 50% of total startup activity is in the 18-40 age group.
  • The rate of women’s entrepreneurship is about two-thirds the male rate, which is comparable to other comparison countries.
  • The rate of entrepreneurship increase steadily with education, being highest among those with some post graduate experience.
  • The rate of entrepreneurship increases across Canada from east to central Canada, and is similar across the west.
  • The strongest aspect of the Canadian ecosystem is physical infrastructure, commercial infrastructure, and the relevant social and cultural norms.
  • The weakest aspects are the lack of education for entrepreneurship at primary and secondary levels, and availability of finance.

The report made the following recommendations:

  1. Provide more targeted assistance to young and growing firms.
  2. Provide more education and mentoring to potential women entrepreneurs.
  3. Expand entrepreneurship training in entrepreneurship in post-secondary institutions.
  4. Provide targeted resources for senior entrepreneurs.
  5. Support entrepreneurs who want to export.
  6. Encourage firms to develop strategy utilizing more intrapreneurship.

Peter Josty

p.josty@thecis.ca
403-249-0191
www.thecis.ca

 

 


How to get more innovation?

12 June, 2017 – Blog #8

How to get more innovation?

In an earlier blog, I asked if we had too much innovation or not enough.  The answer was that some areas had too much and some too little.  Which raises the question what can be done to increase innovation.  In fact, there are quite a number of proven approaches to increasing innovation.  Here is a short list:

  1. Competition. This is one of the effective ways of getting innovation as it uses the ingenuity of large numbers of people who want to make a profit. The economist Willian J. Baumol captures this well in the title of one of his books – “The free market Innovation Machine.”  Baumol goes on to explain that “the prime weapon of competition is not price but innovation.  As a result, firms cannot afford to leave innovation to chance.  Rather, managements are forced by market pressures to support innovative activities systematically and substantially…  The end result is a ferocious arms race among firms in the most rapidly evolving sectors of the economy.”
  2. Prizes. Cash prizes have a long history of stimulating innovation. One of the earliest examples is the Longitude prize, offered by the British government in 1714 to anyone who could determine longitude accurately.  That prize was eventually won by John Harrison, for an accurate clock.  The XPrize is a more recent example, which was set up to bring about “radical breakthroughs for the benefit of humanity”.  The XPrize has stimulated numerous other prizes, including one in Alberta run by the Climate Change and Emissions Management Corporation (CCEMC) to find commercially viable applications for waste gas.
  3. Military spending. This is a very wasteful way of generating innovations, but it can produce very significant results.  Mariana Mazzucato has shown that many of the technologies in the iPhone were originally developed and used by the US military before being “re-purposed” and incorporated into the iPhone.  The internet is another example, which was originally funded by DARPA (Defense Advanced Research Projects Agency) in the US.
  4. Government funded megaprojects. There are a few examples of megaprojects that have developed significant innovations. One is the man on the moon project in the 1960’s.  This was a political, not scientific project that occurred at the height of the cold war.  NASA considers Landsat satellite imagery to be a direct result of this megaproject.  However this is a very wasteful way of getting innovations.  Another example might be the Chinese government’s initiative – the Belt and Road project – to spend significant resources to enhance trade across Eurasia.

Because of the magnitude of resources required, this will always be a very minor contribution to overall innovation.

  1. Surprisingly, regulation can sometimes stimulate innovation.  A classic example is the role of the California Air Resources Board (CARB), which imposed stringent fuel economy standards for all automobiles sold in California, in 1967.  This led automakers to develop innovations to significantly improve fuel economy, not only for cars sold in California but everywhere else as well.  There have been numerous other similar examples.  Carbon taxes and cap and trade systems are intended to stimulate innovation by the same mechanism.  Nobody wants to pay taxes and people and companies work to reduce emissions and so pay less tax.
  2. Sometimes innovations just happen without any apparent motivation. The “learning by doing”, “experience curve” or “learning curve” effects are based on a series of often very small changes which cumulatively have a powerful effect.  When a routine task is repeated, each cumulative doubling of repetitions typically leads to a reduction of 10-20 % in cost per unit.
  3. New Technology. The classic example of a new technology stimulating innovation in the old technology it aims to replace is the sailing ship. In the 30 years after the introduction of the steam power in the 19th century, sailing technology improved more than it had in the previous 300 years.  This is termed the “Sailing Ship effect”, which has been well documented in numerous other cases.

None of these approaches include current hot topics such as research and development spending, venture capital, crowdfunding, tax credits or other popular ideas.  This is not at all to say that these approached don’t work, but just to remind us that there are many paths to innovation.

 

Peter Josty

p.josty@thecis.ca
403-249-0191
www.thecis.ca

 


Losing jobs to machines: is it different this time?

29 May 2017 – Blog #7

Losing jobs to machines: is it different this time?

A number of recent studies have described the jobs that will be lost to automation in the next few years.  The World Economic Forum estimated that 5 million jobs will be lost to robots in the next five years, globally.  The Brookfield Institute for Innovation and Entrepreneurship at Ryerson University issued a report that found that nearly 42 percent of the Canadian labour force is at a high risk of being affected by automation in the next decade or two.  They found that the top five jobs at risk of automation were: retail salesperson, administrative assistant, food counter attendant, cashiers and transport truck drivers.

This report is consistent with other long-term trends in the economy.  For example, a report in the Economist looked at employment growth in routine vs. non-routine jobs, and found that non-routine tasks grew much faster in the last 30 years.

Blog 7 -think

The impact of automation and artificial intelligence seem so far-reaching that some people suggest it will permanently reduce the number of jobs needed in the economy.  A recent study by the National Bureau of Economic Research in the US found that each new robot added to the workforce meant the loss of between 3 and 5.6 jobs in the local commuting area.

Meanwhile, for each new robot added per 1,000 workers, wages in the surrounding area would fall between 0.25 and 0.5 percent.

Fear of changing technology is noting new.  A hundred years ago the Luddites destroyed weaving machinery they believed was threatening their jobs.

However, there are strong views saying that we shouldn’t worry about automation. In  a poll of Canadians Abacus Research found that 89% of Canadians agreed that technological change has been good for the world. And 76% felt it had been good for their own economic well being. They may be on to something. According to the Global Entrepreneurship Monitor study of  entrepreneurship, Canada is the most entrepreneurial country among the advanced countries.  Entrepreneurship is basically creating new jobs by following opportunities, whatever the rest of the economy is doing.

There is heavy weight evidence to back up this view.  Joel Mokyr, an economic historian, points out : “We can’t predict what jobs will be created in the future, but it’s always been like that.  Imagine trying to tell someone a century ago that her great-grandchildren would be video-game designers or cybersecurity specialists.  These are jobs that nobody in the past would have predicted.”

Carolyn Wilkins from the Bank of Canada points out that technological change has been part of the Canadian economy since Canada was founded 150 years ago.  100 years ago one third of jobs were in agriculture, today fewer than 2% are.

So there are optimists and pessimists. Who is right? And is it different this time?

While history supports the view that new jobs will be created to replace the jobs lost, we can’t be sure of that. So what should we do, given that uncertainty? It seems to me that we need to consider three actions:

  • Expand adult re-training. It is pretty clear that many people are going to loose their jobs, and will need to find new ones.
  • Update the education system to increase the focus on preparing people for the non-routine jobs that seem likely to dominate the economy in the next 50 years.
  • Experiment with novel social programs that may be needed if the pessimists are right. A good example of this is the basic income experiments being carried out in many places round the world, including California, Finland,Italy, the Netherlands and in Ontario.

Peter Josty

p.josty@thecis.ca
403-249-0191
www.thecis.ca


Do we have too much or too little innovation?

4 May 2017 – Blog #6

Do we have too much or too little innovation?

We are surrounded by talk about innovation, in the media and in government pronouncements.  But do we really have too much, or too little of it?  Before we can answer this question, we need to establish a framework:

  1. What is our definition of innovation? There are hundreds if not thousands of definitions to choose from.  One widely used is from the OECD (Organization for Economic Cooperation and Development), which see four different types of innovation: product innovation (e.g. a new iPhone), process innovation (e.g. lean manufacturing), marketing innovation (e.g. Amazon) and organizational innovation (e.g. outsourcing).  This definition is helpful for commercial innovations but does not capture broader aspects of innovation such as social innovation and public sector innovation including regulatory innovation.
  2. What role does innovation play in the economy? The economist William J. Baumol sees innovation as the principal weapon of competition in the free market economy, and entrepreneurship as the vehicle for bring innovations into existence. So innovation is the lifeblood of our economy.  He sees three main roles for entrepreneurship: productive entrepreneurship (a useful new product or service); non-productive entrepreneurship (for example, exploiting a monopoly or a tariff wall) and destructive entrepreneurship (criminal behaviour).
  3. Risk and uncertainty. One aspect of innovation that is not apparent from the definitions above is the inherent risk of an innovation. The whole nature of innovation is to “suck it and see”.  When a new product or process is launched, it faces a whole range of risks some of which can be predicted in advance, but many of which cannot.  So trying new things is inherently risky and uncertain.
  4. Life cycle. Another aspect not apparent from the definitions above is that innovations have a life cycle.  New things get commercialized and are welcomed as innovations;  more and more of them get sold and new competitors entre the market and eventually the “new “ thing becomes communized and is replaced in turn by something else.

 

Having set up a framework, we can see that innovations are just solutions to problems.  Quite often, the problems have not been recognized before the innovation comes along.  Henry Ford is reputed to have said that if he had asked his customers what they wanted they would have said “faster horses”.

 

So we can re-frame the question to ask what are the big problems needing solutions today?  The answer is straightforward, and jumps out from the headlines of the newspapers and TV news:

  • Inequality
  • Global warming
  • Trade protectionism
  • Oil sands emissions and costs
  • Terrorism
  • The impact of automation on jobs

This list can obviously be extended.  However, it does give a clue to where we do not yet have enough innovation.

Where do we have plenty of innovation?  Again, we can look to the headlines:

  • Self driving cars
  • Artificial intelligence
  • Drones
  • Robotics
  • Blockchain
  • Quantum computing

This list can also be extended.  So there are clearly areas where innovation is alive and very well.  This list also include some public sector innovations.  For example, the experiment in Ontario with a Basic Income, to provide a level of income for selected households for a three-year period and evaluate the impact.  This experimental approach to government policy making is a new development that is staring to emerge around the world.

To return to our initial question: do we have too much or too little innovation?  It depends where you look.  We are woefully short of innovations is some areas, while other areas are doing just fine.

Peter Josty

p.josty@thecis.ca
403-249-0191
www.thecis.ca

#innovation  #entrepreneurship  #THECIS