Some Reflections on the Expert Panel Report on Business Innovation in Canada

IN 2007, THE GOVERNMENT OF CANADA requested the Council of Canadian Academies (CCA) to canvas the innovation performance of Canadian business, and in particular to shed light on Canada's relatively weak investment among OECD countries in innovation inputs (and the consequent inferior growth in the rate of labour productivity, particularly over the last two decades). The CCA established an Expert Panel to address this request. The resulting report Innovation and Business Strategy: Why Canada Falls Short, presents a comprehensive survey of the research literature and a skilful and balanced interpretation of that literature that will instruct both professional and lay audiences. Further, in seeking to advance understanding of Canada's poor performance, the Panel itself innovates in analyzing the possible explanations by examining the factors that can be thought of as influencing innovation as a business strategy. All of this is presented in eleven chapters of inexorable logical flow, the interpretations of the evidence balanced and appropriately qualified, and with a felicity of presentation that is continuously striking. Though issues of measurement and interpretation in matters of innovation and productivity are inherently complex, one would not hesitate to recommend the Panel's report to any intelligent reader seeking to gain command of issues that are of considerable moment in the fortunes of Canada and Canadians. Peter Nicholson, in the introductory article of this symposium, has summarized the report. The coherence with which the story is told and the care with which it is presented is a central strength of the report. The body of evidence which the Panel surveys and cites to measure the innovative performance of the Canadian business sector and through that performance the alarmingly disappointing growth in labour productivity serves to concentrate the mind, perhaps even those minds aware of many of the elements of the story. After making clear the conceptual links between innovation, productivity growth, per capita output, incomes and well-being, the empirical evidence which the Panel gathered has a considerable cumulative weight. The long-run difference in output per capita of roughly 20 per cent relative to the United States, almost entirely due to differing levels of labour productivity, appeared to be sharply narrowing into the mid-1980s as a broad-based convergence of OECD countries with the U.S. seemed to be in train. After peaking at 93 per cent of the U.S. level in 1984, annual labour productivity growth in Canada departed the train, leading to a steady descent to a level less than 80 per cent in 2007, a level not seen since the late 1960s. Further Canada's average labour productivity growth over the same period ranked 15th out of 18 OECD countries. Of this lagging performance around 90 per cent is attributed to the poor performance of multi-factor productivity in the business sector, the residual in the decomposition of labour productivity growth after increasing capital intensity and improvements in the quality of the labour force have been accounted for. Part of the explanation involves the slower investment in information and communication technologies (ICT) by Canadian businesses.