A requiem for the feds’ (failed) innovation strategy

The bottom fell out in April.

On April 16, the federal government unveiled its 2024 budget, a 416-page document containing billions of dollars in funding commitments and policy initiatives for tech.

Most of it was ignored due to the unexpected insert of a capital gains tax inclusion rate that, to many, seemed directly targeted at those who finance, build, and work for Canadian tech companies. The announcement was a shock to those hoping for meaningful updates on past tech commitments. It was also a shock to ISED employees BetaKit spoke with who suddenly found their work on what might have been considered a weighty innovation budget completely overshadowed.

“This has been a lost decade of innovation policy in Canada and the signals have revealed themselves to be incompetency and an inability to get things done.”
Ben Bergen, CCI

The response, if not unanimous, was swift and loud.

Over 2,000 prominent tech leaders signed a letter against the changes, with some calling the decision a “mistake,” while others opined that it was “Time to start your next company in the US.”

The reaction crystalized a looming malaise over several headwinds faced by the country and diminished faith in our current government’s capacity to face them, prompting BetaKit to launch a national Town Hall series focused on Canadian productivity, innovation, and optimism.

The kicker? Eight months later, the feds have yet to make the capital gains tax inclusion rate increase law, leaving the CRA to move forward under the assumption that it will eventually come to pass. The ongoing Liberal political crisis, exacerbated by its finance minister resigning on the morning of the Fall Economic Statement, will more likely result in an election, the prime minister’s resignation, or both. It is not often you get to call the Canada Revenue Agency optimistic, but here we are.

Whether or not this government survives the next election will not do much to impact the legacy of its innovation file, which has been marked by indiscriminate spending and unfinished policy commitments.

“This has been a lost decade of innovation policy in Canada and the signals have revealed themselves to be incompetency and an inability to get things done,” Ben Bergen, president of the Council of Canadian Innovators, told me.

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Bergen is on the record as openly questioning whether or not the Liberals know what an innovation strategy is. But those words come from a former Freeland protégé and current lobbyist who was caught off guard by the capital gains tax change like everyone else in April—bruised egos would be understandable. How about Dan Breznitz, a professor at the University of Toronto’s Munk School of Global Affairs? Here’s an excerpt from his recent Globe series on Canada’s productivity crisis:

The result is a government that fails in basic operation capabilities, lacks the ability to think, and is devoid of strategic leadership. We now address systematic long-term problems with short-term solutions that are either based on writing checks (our innovation and industrial policies), ad-hoc and bizarre (our Hail Mary pass attempt to fix the housing crisis by banning foreign students), or by bold announcements that are never followed up with action (from giving the public service independent expert advice to more or less anything green-related). This has a direct negative impact on the Canadian economy.

Breznitz was tapped by the federal government to architect the Canada Innovation Corporation (CIC), a new Crown corporation promised $2.6 billion over four years, with $1.3 billion going to absorb the Industrial Research Assistance Program (IRAP). The CIC, originally pitched on the 2021 campaign trail as a Canadian DARPA, was to focus on innovation and productivity, one of the three investment pillars targeted by Minister Freeland in 2022 to kickstart the economy post-COVID. But the CIC was punted right after last year’s Fall Economic Statement to sometime after the 2025 election, effectively sealing its demise.

“The result is a government that fails in basic operation capabilities, lacks the ability to think, and is devoid of strategic leadership.”

But let’s return to this year’s Fall Economic Statement. Many of its commitments require legislative amendments to be enacted, which under the current Parliamentary stalemate seems “increasingly unlikely,” according to economic analysts at Scotiabank. This means open banking reforms, procurement changes and an IP patent box for the SR&ED program join the Online Harms Act, the Artificial Intelligence and Data Act (AIDA), and yes, the CIC as longstanding innovation policy promises stuck in permanent limbo.

Some might say the Liberals simply ran out of time, as all governments eventually do. But each of the files listed above span several years, going back as far as 2018.

Within the commitments this government has enacted, it’s hard to find much success to follow the funding. The much-vaunted Digital Charter has produced negligible impact. At last evaluation, the Global Innovation ~~super~~Clusters are unlikely to hit their objective of increasing GDP by $50 billion CAD. The Digital Adoption Program has been a quiet failure, unable to fully deploy its $4 billion CAD funding commitment due to poor scoping and declining interest. Google finally blinked in the face of the Online News Act, but there was a brief moment last year when digital access to Canadian journalism could have been effectively eliminated. Cohere aside, questions still remain as to whether the $2.4 billion CAD Canadian Sovereign AI Compute Strategy will prioritize Canadian AI companies or large foreign multinationals.

“We’ve just seen this government kind of time and time again either choose the path of least resistance, get nothing, or just have talking points,” Bergen told me.

There’s no one person responsible for such a dire report card. Former Minister Bains spearheaded the superclusters and Digital Charter. Former Heritage Minister Rodriguez was responsible for the Online News Act and the Online Streaming Act. Former Finance Minister Freeland owned open banking, among other files.

But I’ll summarize the efficacy of this federal government through its two innovation ministers. The current innovation minister continues to vocally defend committing billions of dollars to foreign multinationals in the face of an ongoing Canadian productivity, procurement, and IP crisis. The former innovation minister—who once called for the country to build 30 Shopifys—now works for Rogers.

It is an understatement to say the Liberals had a bad 2024. It is also true that no one knows what will happen next year—I certainly don’t. But whether or not this Liberal government remains in power will have minimal impact on the legacy of its innovation policy. After almost a decade of evidence, we know this is the best they can do.

Feature image courtesy Madison McLauchlan for BetaKit. Chrystia Freeland image via Wikimedia Commons under CC BY 4.0. Feature image of Prime Minister Justin Trudeau via Flickr. Francois Philippe Champagne via Flickr.