Governments can’t find the ‘secret sauce’ of Silicon Valley – by Alex Whalley and Trevor Tombe (Financial Post – November 30, 2016)

“We should not be known for our resources,” said Prime Minister Trudeau at this year’s World Economic Forum in Davos, “but for our resourcefulness.” With that in mind, the government has put innovation policy near the top of its agenda and recently announced $800 million for a “cluster networks strategy” where Ottawa will focus innovation subsidies on particular industries and locations. Though it is receiving much attention, it may not be smart policy.

First, innovation is but a means to the end of higher living standards and productivity. Based on the most recent data from the Penn World Table (the leading source for international comparisons), Canada is about 20 per cent less productive than the United States — equivalent to a staggering $15,000 in lost economic output per person per year. Ottawa is right to focus on closing this gap.

But to improve productivity, developing new technologies ourselves is not the only way. Adopting better technologies from elsewhere has value too, but this is often neglected or explicitly inhibited. Consider municipal restrictions on Uber or Airbnb, or federal restrictions on foreign activity in telecom or airlines.

Trade barriers on machinery and equipment imports also prevent adopting frontier technologies from abroad. World class productivity means reducing barriers Canadian firms face in adopting world class technology.

To be sure, innovation has value but it isn’t clear what problem a cluster network strategy is trying to fix. Measuring innovation is no easy task and different measures tell different stories. Perhaps the most comprehensive source is the World Intellectual Property Organization’s Global Innovation Index.

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