How we can kick-start innovation



We’re in trouble. Three major trends that affect just about everything are heading downhill. Unless we make some significant changes, we’re heading for difficult times.

The trends relate to productivity, innovation, and the environment. Taken together, they’re an pretty good measure of long term sustainability.

Productivity, the subject of the first trend, is an economic measure of how efficiently labour and capital are used.

The Organization for Economic Co-operation and Development (OECD) notes that Canada’s productivity has been dropping for 19 years. If the drop continues, the OECD warns, our standard of living could fall below the average of the 29 OECD countries within 20 years. At present, it is 10 per cent above the average.

The second trend, dealing with innovation, speaks to an ability to come up with, and implement, ideas. At the World Economic Forum held in Davos, Switzerland last month, innovation was described as the first essential to economic progress.

In a broader context, innovation is also a good measure of human well being. It  points to the resilience of people. And resilience is the first essential to sustainability.

At Davos, Harvard University business professor Michael Porter unveiled an innovation index. (Readers will remember Porter for his 1991 study on Canadian competitiveness.) Porter’s index placed Canada sixth in the world in 1980 and ninth in 1995. Unless things change, we will be tenth in 2005.

« In the long run, innovative capacity is the only way we can drive productivity forward,’’ Porter said.

The third trend concerns the environment. I recently came across a 1995 study comparing nine industrial countries (Britain, Canada, Denmark, France, Japan, Netherlands, Sweden, United States, and West Germany), over the period from 1970 to 1990 .

Prepared by the National Centre for Economic Alternatives in Washington, DC, it found Canada had the second worst performance (with environmental trends deteriorating by 38.1 per cent). Denmark was first with only a 10.6 per cent deterioration, and France was last (41.2 per cent). Deterioration in the United States was 22.1 per cent.

The study has never been updated. The National Centre hasn’t had the funds to do an update, and no other organization has attempted one.

Nevertheless, I doubt that the message in the study will have changed much. The rate of environmental assault may have slowed in some categories, and escalated in others. And the ranking of countries may have altered. But the overall deterioration has surely continued. A scan of Environment Canada’s state of the environment web site confirms that the cumulative impact is growing.

So, what to do?

I asked Jack Mintz one question; « If you accepted these reports at face value, and if you were asked by the federal government where to look for a way to turn things around, where would you suggest looking?’’ Mintz holds the prestigious position of Arthur Andersen Professor of Taxation at University of Toronto’s Rotman School of Management.

He had a one word answer: « Innovation.’’ Improvement depends on imaginative new ways of doing things, he said.

We need stronger « brain clusters,’’ he said,  of the type that exists in the Boston region with Harvard, Massachusetts Institute of Technology, Boston University, and Boston College. And that means stronger support for post secondary education. Brain clusters breed innovation and attract corporations.

But to get cutting-edge companies to settle in the Golden Horseshoe area, it won’t be enough just to strengthen the brain cluster that already exists (the universities of Queen’s, McMaster, Western Ontario, York and U of T). More is needed, and for this, Mintz has a proposition that he thinks is worth studying: Slash corporate taxes, and balance government books with an environmental tax on polluters. He’s sure that a $1 billion tax cut for corporations could be financed through an environmental tax.

What an imaginative approach to the three problems plaguing us.  Finance Minister Paul Martin should hire him to work on details.

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