Invest in Innovation

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.