Innovation, productivity, and competitiveness

Innovation, productivity, and competitivenessEarlier this week, the Information Technology & Innovation Foundation (ITIF) released a new report, Assessing Canadian Innovation, Productivity, and Competitiveness [pdf, 1.2MB; Executive Summary, 2.7MB].

The key takeaways identified in the report are:

  • Canada lags peer competitors on key innovation indicators, particularly in the areas of research and development, intellectual property, and innovation outcomes.
  • Canada’s productivity performance has been dismal. For comparison, American labour productivity growth was 160 percent faster than Canada’s from 2002 to 2020 — and America’s growth in that period was actually low in historical terms.
  • From industry to industry, Canadian labour productivity growth is quite divergent, with some sectors growing substantially and others actually declining.
  • Canada’s competitive position in advanced industries is weak, as its global market shares have fallen dramatically over the last 25 years. It now has 42 percent less advancedindustry output as a share of its economy than the global average.
  • Canada’s crisis cannot be adequately understood or addressed by looking only at broad macro factors such as tax rates, infrastructure, and education. Policymakers must develop economic strategies focusing on firm, sector, and technology levels.

The Canadian Innovation, Productivity, and Competitiveness report is the first to emerge from ITIF’s new Canadian Centre for Innovation and Competitiveness. Pointing at China becoming the world’s largest manufacturer and advanced industry producer, the report says that “the demise of Nortel and the concomitant rise of Huawei were just an opening salvo.” The report also observes that Canada has not been successful at migrating the billions of dollars invested at research universities into a robust innovation economy.

More could be done to encourage universities to play a stronger role in supporting private sector innovation. The SR&ED tax credit could be redesigned to be a spur to R&D increases. Canadian policymakers could stop looking to Europe as a regulatory model for emerging technologies and instead look to the United States for ways to grow a globally vibrant technology economy.

The report lays out 10 principles to guide policy efforts for improving Canadian innovation, competitiveness and productivity. A few of these are worth highlighting here. It is notable that ITIF says Canada needs to “See big and medium-sized businesses as beautiful.” How often to we see politicians vilify success and profits, instead of celebrating these as desirable attributes, beneficial to employees, shareholders and the economy at large? ITIF also calls for Canada to “Focus less on industrial recruitment and more on supporting companies already in Canada.” The third principle that I will highlight recommends that we “Reject the precautionary principle and embrace the innovation principle.”

Canadians are feeling that the economy is in a crisis. Young people no longer expect to be more successful than their parents. Home ownership is out of reach for many. As ITIF notes, many people consider “that the continuation of the status quo economy will lead to a less-prosperous Canada.”

The report’s conclusion leads us to ask if there is an opportunity for leaders in the private and public sectors to leverage the momentum of a growing consensus, to make bold changes to transform Canada’s economy. The status quo is not an option.

Which political party will adopt a more complete innovation-driven economic agenda to drive productivity and competitiveness?

Failing to lead

Canadian parliamentarians of all stripes are failing to lead.

Over the past two months, Canadians have witnessed theatrics take the lead as corporate executives appeared in front of parliamentary committees. In early March, I wrote about “faux outrage” expressed by members of the Standing Committee on Industry and Technology (INDU). These parliamentarians have have numerous occasions to ask questions and actually listen to answers from telecom industry professionals. Of course, that would require that the MPs do real research when preparing their report on “Accessibility and Affordability of Wireless and Broadband Services in Canada”.

You can read the transcript from the March 18 meeting of INDU, or watch the replay. The parliamentary Standing Committee on Canadian Heritage (CHPC) was no better. It summoned Bell’s CEO to explain the recent round of staffing cuts. I encourage you to watch the 2-hour video replay. MPs should be embarrassed by their performances.

It quickly became clear that none of the questioners bothered to listen to a word in the opening statement. None of them adjusted the scripts that had been prepared for them. MPs recited incorrect facts and refused to allow the witness to correct them.

I don’t think I would have had the strength to resist using unparliamentary language had I faced such questioning. It was political theatrics, an unproductive waste of time.

These meetings were opportunities to engage in public discussions with the CEOs of some of Canada’s biggest employers. The time was squandered while MPs of all stripes sought to create transcript excerpts to include in their constituent newsletters. It was a shameful display.

At the April CHPC meeting, one of the MPs accused Bell of tax evasion – a criminal act. Another impugned the integrity of the CEO saying he feigned an inability to hear a part of the question.

I’m sure the MPs got a kick out of the experience. Beating up a highly paid CEO plays well to the masses. Great theatre.

Parliamentary committees provide an opportunity to explore issues in greater detail than we expect in the House of Commons. Unfortunately, multiple meetings of INDU and CHPC could have explored telecom policy in depth. The meetings hosted executives charged with building Canada’s critical digital infrastructure. Parliamentarians might have examined whether there are any policy levers that led to layoffs at Canada’s largest private broadcaster. What is standing in the way of further investment? What are industry trends here and abroad? As employers of hundreds of thousands of Canadians, do you have ideas for improving Canada’s productivity.

I am not saying that parliamentarians should have policy written by corporate executives. But, we watched MPs failing to lead when they squandered multiple meetings with the CEOs of some of Canada’s biggest and most widely held companies. These are the leaders of companies that employ of tens of thousands of Canadians, pay billions of dollars in taxes and fees to the government and invest billions of dollars annually in digital infrastructure.

Nobody asked big picture questions. No one, not even opposition members, thought to explore whether government policy can be to improved. I heard no one ask, “how can we help?” It was a missed opportunity to engage. It was time and an opportunity squandered in search of “gotcha” moments. Again.


Social media harms

The way social media harms our kids has been in the news lately. I am not talking about the Online Harms Act, which has been the subject of a number of my recent posts. I will also not be talking (at least not in this post) about the inappropriateness of the Governor General hosting a forum about Online Harms when a bill is being reviewed by Parliament.

Four of the largest school boards in Canada launched a lawsuit against the owners of Facebook, Instagram, SnapChat and TikTok. The suit accuses them of “negligently designing products that disrupt learning and rewire student behaviour while leaving educators to manage the fallout.” The Boards of Education are seeking $4.5B and asking for a redesign of the platforms “to keep students safe.” School Boards are represented by personal injury firm Neinstein LLP, which has taken the case on contingency. More than 200 school boards in the US have launched similar suits.

Eight years ago, I wrote “Is Social Media Better At Breaking Than Making?” That post referred to a Tom Friedman piece in the New York Times (“Social Media: Destroyer or Creator?”). It also included a TED Talk by Wael Ghonim, a former Google employee in Egypt whose Facebook page was credited with helping launch the Arab Spring. In his talk, Ghonim says “Five years ago, I said, ‘If you want to liberate society, all you need is the Internet.’ Today, I believe if we want to liberate society, we first need to liberate the Internet.'”

The talk is worth watching. In my view, it stands the test of time.

But, let’s return to that school board lawsuit. The claim is that these social media platforms “rewire student behaviour while leaving educators to manage the fallout.”

A new book by Jonathan Haidt is attracting some attention on this theme of “rewiring”. “The Anxious Generation: How the Great Rewiring of Childhood is Causing an Epidemic of Mental Illness” was released last month. He claims that social media platforms are responsible for “displacing physical play and in-person socializing.” How? By “designing a firehose of addictive content that entered through kids’ eyes and ears”. In doing so, “these companies have rewired childhood and changed human development on an almost unimaginable scale”.

A critical review of the book in Nature triggered a lengthy rebuttal on Twitter.

The author of the review in Nature is Candice Odgers, associate dean for research and professor of psychological science and informatics at University of California, Irvine. She has a distinctly Canadian connection. Odgers co-leads international networks on child development for Canadian Institute for Advanced Research in Toronto. She says science doesn’t support the thesis of digital technologies rewiring children’s brains, causing “an epidemic of mental illness.” According to Odgers, Haidt’s work confuses correlation with causation. Specifically, she says studies have not found use of social-media predicts or causes depression. Rather, the research shows those who already have mental-health problems use such platforms differently compared to others.

Haidt’s response, a 984 word, 6311 character post on Twitter (X), has attracted more than 1.5 million views. (I remember when tweets were restricted to a maximum of 140 characters.) His post includes links to collections of resources referenced in his book.

That academic debate is certain to continue.

How should social media platforms be regulated? What is the role of schools, teachers, and parents to assume respective responsibilities for kids’ use of devices and apps?

Building resilience in telecommunications

Building resilience in telecommunications in Canada and Beyond. That is the topic for a workshop taking place in downtown Toronto on the afternoon of May 14, 2024. The event is hosted by the Ivey Business School.

Over the past couple of years, I have written about network resilience a few times:

  • Reliable and resilient networks (January 23, 2024)
    I observed that weather-related service disruptions will likely be a bigger factor in coming years. In a competitive environment, I asked what is the role of regulators in setting standards or objectives for reliable and resilient networks?
  • Network resilience (April 14, 2023)
    This post looked at the report released by The Canadian Security Telecommunications Advisory Committee (CSTAC), aimed at improving network resilience and reliability.
  • Time to rethink resilience (October 11, 2022)
    While it is impossible for businesses to prepare for all potential disruptive events, mitigation strategies can dampen potential damages.

Network resilience was incorporated in the 2023 Policy Direction to the CRTC. The Canadian government oversaw the creation of a multilateral memorandum of understanding for mutual assistance in the Fall of 2022. The CRTC has not yet released its final determinations in its “Development of a regulatory framework to improve network reliability and resiliency – Mandatory notification and reporting about major telecommunications service outages”, launched a year ago. Regional governments have increasingly been concerned with the Emergency Management and Climate Readiness. Canadian consumer groups have raised concerns about network outages, prompting responses from both government and industry. The industry is investing heavily for resilience in wired infrastructure and wireless networks, including satellite.

In the Canadian context, discussions include examining the roles of government funding mechanisms, outage reporting, network access, and the role of layered and competing infrastructures. Internationally, both geopolitical and domestic concerns have brought resilience to the highest concerns among Canada’s main trading partners and allies. New initiatives are underway in the United States, the European Union, and South Korea, among others.

This workshop aims to explore policy, regulation, business strategy and institutional frameworks for an increasingly resilient Canada – in a world where threats to resilience (climate events, cyberattacks, war) surge forth without regard to national borders or government mandates, with digital ecosystems of international reach. Speakers from Canadian government, industry and consumer organizations will join with international experts for an engaging debate and important announcements. New initiatives, frameworks and concepts will be explored by an inquisitive debate and presentations.

Speakers from Canadian government, industry and consumer organizations will join with international experts for an engaging debate and important announcements. New initiatives, frameworks and concepts will be explored by an inquisitive debate and presentations.

Confirmed speakers include:

  • Andre Arbour, Director General, Telecommunications and Internet Policy, ISED
  • Erik Bohlin, Professor, Ivey Business School, and Ivey Chair in Telecommunication Economics, Policy and Regulation
  • Seongcheol Kim, Professor, Korea University
  • Phil Moore, VP, TELUS
  • Romel Mostafa, Director, Lawrence National Centre for Policy and Management, Ivey Business School
  • Eli Noam, Professor, Columbia University
  • Jieun Park, Korea Institute of Science and Technology
  • Adam Scott, Vice Chair, CRTC
  • Georg Serentschy, Serentschy Advisory Services

This workshop, Building Resilience in Telecommunications – In Canada and Beyond, is funded in part by the Ivey Chair in Telecommunication Economics, Policy and Regulation, as well as the Lawrence National Centre for Policy and Management at the Ivey Business School. Registration includes lunch, all sessions, and a cocktail reception to wrap up the day. It all takes place at Ivey’s Donald K. Johnson Centre in the Exchange Tower at 130 King Street West in the heart of Toronto’s financial district.

The full agenda [pdf, 660KB] and registration information are available on the event website.

Sustainably competitive

When looking at telecom services, regulators should focus on whether the market is sustainably competitive. That seems to be the message arising from merger reviews in Europe.

After years of focus on the number of carriers, regulators are taking note of the impact of hypercompetitive markets on investment. UK service providers are unable to cover their cost of capital. As a result, operators are unable to fund network upgrades. Vodafone and Three UK intend to merge. The Competition and Markets Authority (CMA) in the UK is moving into the next phase of its review of the merger.

In announcing its next phase, CMA said “the deal, which combines 2 of the 4 mobile network operators in the UK, could lead to mobile customers facing higher prices and reduced quality.”

The CMA’s Phase 1 investigation found that Vodafone UK and Three UK provide important alternatives for mobile customers. Both have made significant investments in their networks in recent years – which includes the rollout of 5G. Three UK is also generally the cheapest of the four mobile network operators. The CMA is concerned that combining these two businesses will reduce rivalry between mobile operators to win new customers. Competitive pressure can help to keep prices low, as well as provide an important incentive for network operators to improve their services, including by investing in network quality.

Vodafone and Three UK replied, noting “The current market structure has resulted in the quality of mobile network services in the UK lagging significantly behind other European countries. Vodafone UK and Three UK are sub-scale, unable to cover their cost of capital, and constrained in their ability to invest and compete effectively against the two market leaders.”

In February, OpenSignal reported that the UK ranked 22nd for 5G availability and download speeds when comparing to 25 European countries. The UK has the slowest download speeds in the G7. By way of comparison, I recently wrote that Canada is consistently a leader in availability and speeds.

There is a reason why EBITDA margins are necessarily higher among facilities-based telecom competitors. By definition, EBITDA measures the earnings before consideration of interest, depreciation, and amortization. Each of these are costly factors for companies with large investments in infrastructure. If the EBITDA margins are not sufficiently strong, network operators will be unable to maintain investment.

Last October, I wrote about a CRTC arbitration on MVNO access, where the Commission determination explicitly said “This decision helps to promote access to affordable telecommunications services for Canadians and to foster sustainable competition and continued investment.” At the time, I asked “To what extent does it provide clues for the way the CRTC will approach revisions to the wireline wholesale framework?” I wrote about sustainable competition two years ago, showing how the CRTC and Competition Bureau seemed to be at odds in their approaches.

A singular focus on driving lower prices fails to appropriately consider balancing competing policy objectives. In Canada, telecom policy seeks a balance between quality, coverage and price. I’d submit that the number of competitors should be a less important factor for policy makers. The more important consideration should be fostering a sustainably competitive market to deliver overall consumer benefits.

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