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.