ITIF president wonders whether Canada has the “political will” to fix its productivity issues

Rob Atkinson
Rob Atkinson pines for a "killer instinct" while launching the CCIC.

Rob Atkinson, a Canadian-born economist who has served several White House administrations including the current one, decided it was time to bring some of what he learned home. 

For the last 18 years, he’s led the Washington, DC-based think tank Information Technology & Innovation Foundation (ITIF). On Tuesday, he launched its Ottawa affiliate, the Centre for Canadian Innovation and Competitiveness (CCIC). 

Prior to the launch event, which featured a panel on a new report called Assessing Canadian Innovation, Productivity, and Competitiveness, CCIC held a dinner to discuss the long-standing issue of Canada’s productivity woes. 

BetaKit spoke with Atkinson to get his take on the perennial issue, and the conversation veered into how Canada might want to be more like the United States when it comes to innovation, how it should approach Scientific Research and Experimental Development (SR&ED) tax incentives, and why innovators need a “killer instinct.”

This interview has been edited for length and clarity.

For people who aren’t aware of the new think tank you’re launching, or of the ITIF, why are you launching the Centre for Canadian Innovation and Competitiveness?

I’ve been coming up to Canada on a regular basis, usually at the invitation of Canadian government officials or some other organization. And in the last probably three or four years, I’ve been increasingly asked by government officials, ‘Hey, could you open up some kind of ITIF presence in Canada? Because we think your analysis and your voice are underrepresented in the dialogue and discussion of these issues in Canada.’

“Canada is the only country in the world that has its R&D tax credit as a grant program. If Canada wants a grant program, just have a grant program.”

Rob Atkinson

One of the key points is that these issues are very similar across countries: Canada is dealing with AI policy; Canada’s trying to figure out how to do smart manufacturing, cleantech—so is the US, so is the UK, so is the EU. And so we figured we could try to apply that knowledge and expertise to helping Canada to solve these challenges. The other underlying reason [I launched the CCIC], which was more motivational for me, is I’m originally from Canada. I still have relatives here, and it’s troubling for me to see Canada not perform as well as I think it could. 

Your think tank has already submitted policy recommendations, and one in particular on the SR&ED tax credit. Could you elaborate on the potential that there is with SR&ED and give us some insight into the recommendations you put forth?

Lots of countries around the world have research and development tax incentives. Canada is not alone. The US was the first country in the world to have that. We issued a report a year and a half ago by two Canadian economists that measured the R&D tax generosity around the world and Canada is middle of the pack. 

The main couple of things that we proposed: number one, as far as we can tell, Canada is the only country in the world that has its R&D tax credit as a grant program. If Canada wants a grant program, just have a grant program. 

My understanding is that consulting fees for small companies can eat up a third of the cost of the benefit you would get. We argue that this doesn’t make any sense, just do what every other country does—you file it on your tax form and if you make a mistake, you get fined. Number two, the Canadian credit is a flat credit of 15 to 35 [percent] depending on your size, but it’s a credit on all of your R&D. 

The economic evidence, I think, is pretty clear that you’re better off having it be quasi-incremental. In the US, you get a credit of 14 percent on all of your R&D above 50 percent of your base period. So let’s just say you did a million dollars of R&D last year, and for the last three years, you averaged a million and this year you do another million, you’d get a credit on $500,000. Let’s say you did $1.5 million, you’d get a credit on a million.

Your organization focuses on Canadian innovation and competitiveness and your new report describes a Canada that’s facing unprecedented challenges in innovation, productivity, and competitiveness. How would you sum up the country’s performance along those three pillars?

Imagine Canada today if we had Nortel and BlackBerry. Imagine BlackBerry was Apple and Nortel was Huawei. Canada would be an unrecognizable economy compared to where it is today. Just look at Sweden. Sweden’s a small country, smaller than Canada, and it has three or four major global technology leaders headquartered there. The lack of companies that have been able to grow even to middle-sized businesses that are global, I do see that as a major challenge for Canada. 

Canada’s oil-and-gas sector and mining are world class, but the real risk is: is that coming at the expense of, or substitution of, more advanced industries in other sectors? I think it’s kind of like a little bit of a drug. If Canada didn’t have natural resources, it would be in really terrible shape. 

So how do we fix that?

I think the more important question is, is there the political will to do that? The sort of playbook of winning in the innovation economy and the playbook of boosting productivity, it’s not like some secret tablets that have never been discovered. 

“Canada thinks of itself as a small big country when it should really be thinking about itself as a large small country.”

Canada thinks of itself as a small big country when it should really be thinking about itself as a large small country. If you look at some of the countries that have really done well—Israel, Finland, Sweden, Taiwan, Ireland—they’re small countries and a reason they’ve been able to do well is they’ve been able to innovate in government, take risks, and bring everybody together around a common vision. Canada doesn’t seem to be able to do that. 

Canada should be the leading country in the world for drone regulation, for autonomous truck regulation, for FinTech regulation, for AI regulation. [It should be,] “If you want to be an innovator, come to Canada, because we’re going to streamline things. You want to do something? You’ll get approval within two weeks.” It really seems to be looking to Europe for inspiration for how to regulate and continental Europe is not an inspiration, it should be a horror story to avoid. 

The report touches on a number of areas with which the country struggles but I wanted to bring up one point you highlight, and that’s that Canada has fewer unicorns proportionally than the US. What’s the reason for that lag?

There’s a number of different reasons. One is, simply, it is easier to scale a company in the US because we have a bigger domestic market. But still, with USMCA (United States-Mexico-Canada Agreement), at the end of the day, that really shouldn’t be a problem for a Canadian innovator. If you’re making a really great widget, there’s no reason you can’t get in the US market and the Canadian market from day one.

[Another issue], at least from the people we’ve spoken to, there does seem to be a view that a lot of Canadian innovators are happy to have a smallish to mid-sized company, especially when you can get a good R&D credit for that and apply for some grants. You can chug along okay. The US is not like that. It’s much more on your own back to build these global companies. Possibly related to that is culture. I worry that maybe there’s a lack of hunger, aggression, killer instinct that you really need to have if you want to build a [global company].

The federal government wants to increase the capital gains inclusion rate from 50 percent to 66.7 percent. What’s your take on this? Would it impact Canada’s ability to compete and if so, how?

From a pure perceptual point of view, is Canada a good place to do business for an innovative company? Maybe not. That sends a signal to innovators, not just in Canada, but around the world, that [the country] either doesn’t understand the innovation economy or doesn’t appreciate it. The third thing is, it does appear that it will limit the ability to retain capital and bring in capital if you’re a small startup company looking for equity.

Feature image courtesy the World Trade Organization via CC BY-SA 2.0 DEED.

Bianca Bharti

Bianca Bharti

Bianca Bharti is the newsletter editor at BetaKit, where she spearheads coverage and analysis of tech news in related products. Before BetaKit, Bianca covered the nexus of markets, industries and policy in a variety of formats as a reporter for the Financial Post. There, she won silver in SABEW's 2021 Best in Business Journalism Awards in the personal finance category for one of her pieces. In her free time, she enjoys swapping her reporter hat for a baseball cap to hit up some hiking trails with her dog. She also weirdly loves debating monetary policy.

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