Overcoming Canada’s innovation barrier will lead to more productivity

The latest federal budget includes $1.7-billion for attracting international talent, a welcome investment in a country where we struggle to turn scientific discoveries into innovations that drive economic growth.

The investment ought to attract more than 1,000 international researchers to the country. It will require a shift in culture to turn Canada’s impressive scientific track record into productivity.

Work by biologist Pieter Cullis at the University of British Columbia on lipid nanoparticles enabled mRNA vaccines for COVID-19. The University of Toronto’s Dan Drucker helped pave the way for GLP-1 obesity drugs like Ozempic. British-Canadian researcher Geoffrey Hinton helped spark the AI revolution. These discoveries are all worthy of the Nobel Prize (which Mr. Hinton has already been awarded) and have had enormous benefits. But the economic benefits captured in Canada have been limited.

The budget calls Canada’s productivity “persistently weak,” and points out “if Canada’s productivity growth had matched the U.S. from 2017 to 2023, the median income of a family with one child would be nearly $11,000 higher.” If we do not fix this trend, our kids will be poorer than we are, and our sovereignty will be at risk.

The twin drivers of productivity are infrastructure and innovation. The government has made a good start on infrastructure with the first five “major nation-building projects.” What about innovation? The budget contains a suite of tax and venture-capital measures, as well as R&D investments in AI, climate and defence. But this is where the investment in international talent could be better targeted to recruit scientists who have started and grown successful companies elsewhere.

The talent strategy could also serve as the pathfinder for the types of supports that are needed to keep companies in Canada. Large companies such as Google (in the case of AI), Novo-Nordisk (for GLP-1 drugs) and Pfizer (for mRNA vaccines) tend to capture the economic value of discoveries. Canada has few large anchor companies, and those formed around discoveries often move to the U.S. when they are mid-sized. To address this problem, the talent strategy could require that the government’s grant funding would be converted into an equity share should this occur.

Imagine that in five years Canada would have dozens of scientists starting and growing companies with an intentional strategy to capture the economic benefits for Canada. This would not only generate significant economic activity, but also change the culture from one that values discovery alone to one that also values successful commercialization.

Such a talent strategy could be complemented by redesigning some of the ways science is funded. Surprisingly, one of our most practical models to turn innovative ideas into impact is found in Canada’s international development strategy. Over the past 15 years, the non-profit Grand Challenges Canada (GCC) has supported more than 1,500 innovations in 100 countries. The lessons learned could improve Canada’s innovation performance.

When I was CEO of GCC, many innovators told me they had not been able to receive support from traditional grant-funding agencies. Some of our investments helped to spawn successful Canadian companies, such as AlayaCare, which eases patients’ journeys between home and hospital, and KA Imaging, which developed a new X-ray technology. An Indian company – Molbio Diagnostics – became a billion-dollar diagnostics firm.

Canada’s system supports early-stage research well but drops off when projects need to scale. By contrast, at the early stage, GCC provides grants, selected via peer review. But at the transition-to-scale stage, GCC selects projects using an investment committee of scientists and venture capitalists, and designs bespoke funding, combining grants with debt and equity. For the growth stage, GCC was an anchor investor in the Global Health Investment Fund, a for-profit impact investment fund that provided both financial and social returns. This approach helps cushion the risk of being an entrepreneur.

These proposals on talent and funding have this in common: they are ways to reinforce Canada’s culture of innovation. As management guru Peter Drucker famously noted, culture eats strategy for breakfast.