To fix Canada’s economic problems we need real strategy

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Dan Breznitz is the Munk Chair of Innovation Studies at the University of Toronto, as well as the co-director of the Canadian Institute for Advanced Research’s program on innovation, equity and the future of prosperity. He served as the Clifford Clarke Economist for the federal Department of Finance during 2021-22.

We are one of the richest economies on Earth, a member of the rarified Group of Seven and yet for the past three decades we find ourselves on the slow road to economic stagnation. This makes one thing perfectly clear: Given the long trajectory of our decline, our problems are structural not cyclical. Hence, fixing them will require deep systemic changes, not merely policy tinkering.

We need a mindset change: the world does not need more Canada, it is Canada that needs to be in the world to be prosperous. That is going to be to be a long process, filled with inevitable mistakes from which we need to quickly learn and change course, while identifying successes and scaling them up.

Unlike the usual theatre of Canadian politics, our productivity and innovation problems are not something for a blue-ribbon panel to fix in one lengthy unreadable report. Our problems are also definitely not fixable in a budget announcement filled with cheque-giving, aspiration-evoking-titled programs.

Furthermore, as a country, for at least two decades we have had no clue as to where we want to go, and if anything, we are even more lost now.

Accordingly, we need a real strategy. Unlike what you might think if you read various Canadian government and corporate documents, strategy is not a long list of the things you have already done, nor is it a set of aspirations without any clear way to achieve them.

To have a real strategy, we must rebuild the machinery that will allow us to devise and implement it, which is the government that we have systematically dismantled over the years. Only then can we truly begin to fix Canada’s economic problems.

As we do all that, we also need be both ambitious in our goals and humble in devising the ways to reach them.

Strategy (a Greek concept used by the Romans and mostly forgotten until the 18th century) is a plan to achieve at least one long-term goal under conditions of uncertainty.

Thus, strategy necessitates the capacity to understand the terrain and make decisions on long-term objectives. It then requires the ability to construct a plan of action, meaning analyzing the current situation and the resources at hand, figuring how to use and improve these resources to achieve the long-term goals, as well as how to identify what critical resources are missing and develop a way to acquire them. After which comes the shoring up of ability to execute (also known as operational capacity) under changing and uncertain conditions.

A perfect example is Taiwan’s semi-conductors strategy since 1974. After the oil crises of the 1970s, Taiwan’s leadership realized the strategic value of the semi-conductors industry. It also recognized its limited capabilities and the limits that Taiwan’s size and unique political status put on the specific goals it can have for the industry and the pathways it can take to reach them.

Accordingly, Taiwan opted to create the Industrial Technology Research Institute (ITRI) – an arm’s-length organization to envision a specific national goal: the development of independent capabilities to design and fabricate application-specific integrated circuits, actively develop technological capabilities and diffuse them to the private market so this goal can be achieved. This means deliberately working on technologies and business models to first master and then separate the production of semi-conductors from design.

No one imagined the particular way the pure-play foundry model of Taiwan Semiconductor Manufacturing Company (TSMC) would succeed and completely disrupted the global industry, putting Taiwan in a global strategic position of power. However, a vision of how the global industry should look like for Taiwan to achieve its strategic goals, and what would be Taiwan’s position in it, was developed. A process of multiple decades of experimentation filled with both failures and successes was started and sustained, culminating in a complete restructuring of the semi-conductor industry and Taiwan emerging as a global power.

As was detailed earlier in this series, since the late 1990s Canada has been dismantling its ability to do what is necessary for strategic thinking and action. First, in order to avoid confrontation between people that would then need to reconcile very different perspectives, we avoided thinking about where we want to go. Second, in our mad rush to create a malleable and fully politically controllable public service, we destroyed the one machine whose aim is to allow us to behave strategically.

We no longer even know how to set goals, we definitely do not know how to develop a plan to get us toward them and our capacity to execute any plans is abysmal. As a result, we are in perpetual reactive mode.

Too often we select a focus and act only after global peers and competitors have already developed their own policies, made investments, determined timelines and generally reduced the opportunity space within which we can act (a few recent examples apart from critical minerals are intellectual property, artificial intelligence and global supply chains).

Canadians are left asking how we can insert ourselves into the grand ambitions of our allies, often forgetting that these allies are also our economic competitors and that there may be opportunities where we can lead rather than follow.

Canada’s lack of capacity for identifying and generating new opportunities, and for developing anticipatory strategies and plans to pursue those opportunities, is a serious risk to our long-term prosperity. Our foundation for productivity, growth and prosperity will continue to deteriorate unless we repair this glaring gap.

So how do we start fixing that?

We must understand that we need to compete with, and be useful for, the rest of the world if we want to stay prosperous. Just saying sorry does not cut it any longer. We need real leadership to re-empower our government, encourage strategic thinking, honest and public discussions, the ability to innovate and experiment, and decentralize power so action can be taken and not just announced. We also need the leadership of our public service to have a mindset change. We need to have our true public service leaders back.

Our leaders also need to understand that skills and knowledge are essential, and that many of them do not exist within the public sector and must be acquired outside Ottawa. Additionally, outcomes and operational excellence must become again the one metric that rules them all. This means a significant effort at re-educating and fostering the cultural change that our public service must commit to take.

Successful societies, from Finland and Denmark to Taiwan and South Korea, are constantly developing strategies for current critical domains and identify future domains for strategic actions. They do so specifically so their political leaders would be both well informed, and the country can act rapidly, wisely and decisively, when they make an informed decision.

But there is no part of the Canadian government that is tasked with this core mission or equipped with the capabilities to deliver on it. Canada does not have the equivalent to the Executive Office of the President of the United States (EOP), or even have true units of strategic policy in our most important federal departments.

Critically, we do not have the capacity to regularly and continuously get the best and smartest people in business and academia to work with, and within, our public service on a regular and continuous basis so our national strategies can take advantage of the best knowledge, skills and new ideas from all around Canada. Not just from inside Ottawa.

Accordingly, while some units of government, especially where deep technical ethos and expertise were kept, are able to quickly start delivering real strategic action, many other parts would take years of continuous efforts before they will be, once again, as good as Canadians deserve them to be.

We already talked about Taiwan and how it developed its semi-conductors industry. The same was true for many other countries from Finland, Denmark, South Korea and Israel, where the Office of the Chief Scientist experimented with policy tools and assisted thousands of companies, many of them failing to grow, as it slowly figured how to build the foundations of success and scale them up, making the country’s high-tech industries into global leaders.

We have also done it, from creating global brands, such as canola, and figuring out how to unlock the oil from the oil sands in Alberta. Indeed, that is the core idea behind Crown corporations and foundations (even if Ottawa managed to collectively forget that) – creating an independent organization with a public purpose to achieve a specific strategic national goal.

Such organizations need several conditions to work successfully. They need to be given a narrow enough mission so it can be operationalized and fulfilled, as well as the capacity and authority to develop, and experiment with, the policies and programs with which they aim to achieve their mission. Accordingly, they must have operational excellence and the best public- and private-sector leaders with deep domain knowledge and proven operational and strategic capabilities, no matter what their political party affiliation is.

However, to really succeed in transforming Canada back into a leading G7 economy, those organizations must be allowed to fail, and fail multiple times, which is exactly why they need to be at arm’s length from government. The distance and independence are needed both to have the flexibility to experiment and use tools that the public service cannot, and should not, be allowed to use, but also so their failures would not be directly attributed to the reigning political leaders. These leaders should also relish this arrangement, as it allows them to easily distance themselves from at times of failures, while always claiming responsibility for successes.

This leads us to governance. Elected officials and the public should have the right to have proper representation on the board, but not have operational control, and where the core criteria for selection must be competence, and not political donations. Under such circumstances when those organizations are, wrongly, accused of not behaving like a government body, and of failing often as they try to find what works, they can, and should, be defended by our political and public leaders as doing exactly what they were created to do. That is: acting strategically by taking risk and uncertainty head-on to fulfill our collective goals.

Those are truly ambitious undertakings, so why did I say that we need to be humble?

We need to be humble since the missions before us are daunting, systemic and long-term. Thinking that we are smart enough to find the optimum solution for any of them at the get-go is hubris; thinking that they can be solved with one grand policy program is insane.

Instead, we need to decide on the objectives and be able to commit ourselves to a long-term process of strategic experimentation. A process in which we learn what works and scale it up, and, equally important, shut down what seemed like a wonderful idea on paper, but failed in reality.

Lastly, we must have the capacity to develop policies to counter the roadblocks which we cannot even imagine, as well as the ones others will try to put in our way. We need to be ambitious in setting our national goals, but humble as we, relentlessly, go about achieving them.

To do the things that need to be done, Canada needs a mindset change led by true leadership that cares about the public good first and foremost. It is here where our role as citizens is crucial. We will never have such leadership if we, Canadians, do not start to demand it. That is the essence of democracy, and it is time for our voice to be heard again.