Invest in Innovation
U of T experts argue that the country’s economic future depends on turning ideas and resources into high-value industries Read More
In a chaotic moment when decades-old alliances and trade relationships have been upended seemingly overnight, Canadian leaders face a generational question: how can our country earn influence in a rapidly changing world order?
Great power rivalries are eclipsing previously stable global norms, leaving middle powers such as Canada to reassess their roles. “If you had asked me five or six years ago, I would have said the country that controls the process of globalization through institutions is the great power,” observes Manjari Chatterjee Miller, an international relations professor at the Munk School of Global Affairs and Public Policy. “That was the United States. Today, the international order built by the U.S. is in flux.”
Canada’s response, experts argue, should focus on an ambitious domestic agenda to boost productivity through innovation and harness its natural resources in new ways. This means developing new technologies to refine raw materials domestically and exploring new markets outside North America. Yet Janice Stein, founding director of the Munk School and the Belzberg Professor of Conflict Management, cautions against expecting sweeping changes overnight. “If we’re able to reduce the share of our exports going to the U.S. from 75 per cent to 65 per cent, that would be an achievement,” she says. “These next 10 or 15 years truly have to be about investing energy and effort in our own society, and preparing for a very different global economy.”
A Financial Times column published earlier this year points to Canada’s potential role as an energy and critical-minerals superpower. Endowed with abundant natural resources, Canada possesses oil, uranium and potash, and increasingly crucial substances such as lithium, rare-earth elements and graphite.1 These materials are essential for the global transition away from carbon. “A country with [Canada’s] geography could clearly generate higher output,” wrote economist Tej Parikh. “To do so, the Canadian economy needs to become more efficient, raise investment and attract more high-skilled workers.”
We have the most highly educated workforce in the world, yet they work with old technology, old equipment and the old way of doing things.”
But Canada’s future prosperity cannot rely solely on commodities. Dan Breznitz, a professor of political science and the Chair of Innovation Studies at the Munk School, says governments and businesses must focus on developing and exploiting home-grown intellectual property in ways that have previously eluded policymakers.
“Both the private and public sectors in Canada avoid engaging with new knowledge and new technology,” he says. “The result is falling productivity. We have the most highly educated workforce in the world, yet they work with old technology, old equipment and the old way of doing things.”
Boundless potential
He draws a cautionary parallel with Argentina, a resource-rich nation whose recurring economic crises stem from an open-markets policy and the foreign acquisition of domestic resources. In Canada, long-stalled median wages and low productivity rates reflect long-standing assumptions that natural resources will be processed abroad, that intellectual property will be acquired by offshore investors, and that Canadian firms looking to commercialize inventions must head south for venture capital. An alternative future, Breznitz argues, requires a strategic approach that uses Canada’s deep talent pool and vast resources to become a global player in selected sectors.
Stein points to the case of rare earth elements and critical minerals. While Canada holds some of the world’s largest reserves, the processing of these minerals is overwhelmingly concentrated in China.2 Sustained investment by China, as well as lax environmental standards, have given that country enormous clout in global supply chains, including over the U.S., for electronics and other high-tech products. “We need a grown-up discussion,” Stein says. “Do we want strategic leverage in that market? What costs are we willing to pay? What investments are we willing to make?”
Breznitz argues that policy should aim to jump-start domestic innovation by commercializing Canada’s world-leading research. The Canadian government, he says, must encourage long-term experiments in strategic sectors, including banking, telecommunications, health, quantum computing and new materials. Policy interventions might include reducing market concentration in finance and telecom, attaching conditions to R&D tax incentives to prevent the loss of valuable intellectual property to foreign investors, and giving innovators incentives to test, scale, and also abandon floundering projects quickly. He cites examples such as AI large language models and semaglutide (the drug used to treat diabetes and facilitate weight loss, and sold under various brand names, including Ozempic). Semaglutide originated in no small part from research by Daniel Drucker, a U of T professor in the department of medicine working at Mount Sinai Hospital, but was commercialized by the Danish pharmaceutical company Novo Nordisk.
The driving principle, Breznitz adds, is maximizing high-value-added exports. This includes developing and commercializing clean mining technologies to process the minerals that will power a low-carbon society. “That’s how you grow our economy.”
Watershed moment
Miller notes that the abrupt shift in Canada’s political relationship with the U.S. represents an inflection point that is pushing governments and businesses to revisit long-standing assumptions about our place in the world. Canada, she observes, has always existed under a “great power umbrella” – first the British empire, then the post-war U.S.-led order.
If this umbrella is gone, then Canada has some thinking to do. Our new and uncomfortable insecurity – of no longer being able to depend on a unique continental alliance – should provide not just a slogan (“elbows up”). It should fuel the political will to allow Canada to overcome the economic complacency that characterized the NAFTA era.
Canada can aim to become a mid-sized strategic power, like South Korea, with its high-tech manufacturing, or Switzerland, with its pharmaceutical industry, says Breznitz. “We don’t need to control everything. We can serve as an example of a rule-abiding, strategically open, and welcoming economy that the rest of the world aspires to. But for that,” he stresses, “we need to be ambitious.”
This story is one of a six-part feature on big, bold Canadian ideas.
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No Responses to “ Invest in Innovation ”
These complaints about Canada’s low productivity are counterproductive. Progress on added-value industries occurs via change in relative prices in the markets, with governments providing “nudging” to accomplish a particular strategy.
Harvey Naglie writes:
This is a thoughtful and timely contribution to a conversation Canadians have postponed for too long: how a mid-sized, trade-dependent country can adapt to a more fragmented, adversarial global economy.
The article succeeds on several fronts. It effectively connects geopolitics to domestic economic strategy, arguing persuasively that Canada can no longer rely on a stable, U.S.-anchored order and must instead boost productivity and its ability to commercialize ideas. It also highlights a central paradox – a highly educated workforce using outdated tools – and usefully shifts attention from invention to adoption of existing technologies. The discussion of intellectual property and value capture is especially welcome, as is the call to ensure public R&D investments generate domestic benefits. Finally, the tone is realistic about the gradual nature of diversification, and the comparisons to countries like South Korea and Switzerland offer a constructive way to think about Canada as a potential “mid-sized strategic power.”
At the same time, precisely because the article is so strong on framing, its omissions are more noticeable. The first gap is in the political economy of change. The article briefly mentions concentrated sectors such as banking and telecommunications but doesn’t fully grapple with how powerful incumbents slow innovation and diffusion. Any serious effort to upgrade Canada’s productive capacity must confront competition policy, market structure and regulation -- not just exhort firms to innovate.
A second gap lies in the institutional capacity of the state. The article calls for governments to support long-term experiments and attach conditions to public support, but that assumes public institutions with the data, technology and staying power to manage such strategies over time. Canada’s uneven record on execution is one reason so many “innovation agendas” have underdelivered, and that dimension is largely missing.
Third, the article overlooks the challenge of federal-provincial fragmentation. Industrial strategy, skills, regulation, infrastructure and energy policy are all shared responsibilities. Without a realistic plan for coordination, calls for a national strategy risk sounding aspirational rather than actionable.
Finally, there is little use of metrics or baselines. We’re told Canada underperforms on productivity and retaining intellectual property, but without a quantitative sense of scale, timelines or trade-offs. Moving from rhetoric to results will require a clearer picture of where we stand and what progress looks like.
None of this detracts from the article’s ambition. On the contrary, because it raises the right questions about Canada’s place in a changing world, it would be valuable for future coverage to dig further into these harder, less comfortable issues.
Je vois que le travail du gouvernement Carney est directement en ligne avec les stratégies présentées ici. Merveilleux. C'est encourageant.
Somehow Canadians will need to alter their DNA from a history of reaction and dependence to one of action and independence. To borrow one of Prime Minister Carney’s phrases, we need to be laser-focused on productivity. I believe that Prime Minister Pierre Elliot Trudeau said with respect to Canada’s sovereign strategy that no country becomes stronger by becoming poorer. Our biggest threat is being so relatively poor compared to the rest of the developed world that we give up altogether. Our diversity, if it is to be a strength, must identify what we share and bring to the same table.
The section on critical minerals and rare earth processing raises important questions about strategic leverage. Relying on exports without domestic value-added processing feels like a missed opportunity in a low-carbon global economy.