New North Star IIA Challenge-Driven Industrial Strategy for the Age of Intangibles
News & Updates
The world is changing, and long-held policy assumptions in Canada need to adjust accordingly. The Washington Consensus that has shaped domestic economic policies and global institutions in a laissez-faire mould for roughly 40 years is being challenged by two, new geo-economic realities that Canadian policymakers cannot afford to neglect.
The first is that today’s economy is dramatically different than the 20th-century production economy. The shift to an intangibles economy, driven by intangible assets such as intellectual property, software, data, and brands, is transforming where economic value is derived and who participates in it. Its unique features and characteristics mean that our conventional policy toolkit requires updating if Canada is to cultivate innovative domestic firms that can compete globally in the age of intangibles.
The second is that the United States-China tech “cold war” is changing assumptions about global commerce and geopolitics. This rivalry is already radically reshaping Canada’s economic and security interests. The extradition case of Huawei chief financial officer Meng Wanzhou shows how Canada is implicated in the tensions between its two largest trading partners. In this new era of sharp focus on national interests, Canada cannot count on a liberal global framework, traditional sources of economic activity, nor the U.S. or China. Other countries are responding to these geopolitical trends by shifting from a laissez-faire approach to a national interest-driven model focused on key sectors and technologies based on national priorities and competitive advantage. To remain competitive, Canada must chart a similar course that advances its own interests.
These geo-economic trends were occurring before the COVID-19 global pandemic. But the epochal crisis which began in earnest in late winter 2020 will only exacerbate and accelerate them. The experience of this period will place further strain on globalization and the economic assumptions that have underpinned it in two primary ways: a disruption in global supply chains driven by a renewed focus on supply chain resiliency and domestic productive capacity; and an acceleration of U.S.-China “decoupling.” We are already seeing a rise of economic nationalism and a renewed emphasis on building domestic industrial capacity. The consequences could be nothing short of a new, more realist economic paradigm.
The confluence of these trends – what amounts to the return of political economy – will require a bold policy response from Canadian policymakers: a new, forward-thinking industrial policy. This may have been a controversial contention in the past. But the evidence keeps building. Other jurisdictions are increasingly moving in this direction to support strategic industries in the name of national security, economic development, and emergency response. And, given how much the federal government already spends on industrial programs, pursuing an industrial strategy can be understood as a coherent, intentional deployment of public resources rather than a new dirigisme.
The report is meant to help get out of the starting gates more quickly. It proposes to situate such an industrial strategy at the intersection of Canada’s pre-existing economic strengths and its most pressing societal challenges. By aligning policy frameworks around challenges such as climate change, public health and aging demographics and smart cities and communities, this type of strategy would serve as a north star to marshal public and private resources to meet these challenges over the medium and long term. A challenge-driven industrial strategy would in effect use pressing societal challenges to leverage competitive (and exportable) advantages in this intangibles age.
Such a challenge-driven industrial strategy must:
In particular, Canada must leverage a mix of public and private R&D spending as well as a broader set of policy interventions to fuel commercial-oriented innovation. Canada’s ability to leverage its human and intellectual capital to commercialize Canadian products and services is the key determinant to growth, productivity and higher living standards in the 21st-century economy. Canada cannot afford complacency. Our policymakers must resolve to meet the country’s most pressing challenges in this period of transformational technological and geopolitical change. A challenge-driven industrial strategy provides a way forward, a new north star for Canada and its economy.