Lauerman: Canada’s Clean Energy Supercluster To The Rescue?

Canada is at an economic crossroads.

Federal and provincial government debt as a percentage of GDP has been on the rise since the 2007-09 Global Financial Crisis, with many governments running budget deficits to goose economic growth. And since the novel coronavirus pandemic hit our country last March, total government debt has skyrocketed in an attempt to avoid economic and financial ruin in the short term.

This would not pose a serious problem in the longer term if Canada was an innovation powerhouse as we could grow our way out of this debt mess. Innovation boosts economic growth, by spawning world beating corporate champions and driving total factor productivity.

Unfortunately, Canada is an international innovation laggard, and our corporate champions in a wide range of industries have been dropping like flies over the past two decades. Canada slipped two more spots to twenty-second place in the 2020 Bloomberg Innovation Index, miles back from Germany, South Korea and Singapore.

The hallmark of the top-10 finishers in Bloomberg’s global index, an industrial policy approach to innovation and economic development, with ninth place U.S. the only country continuing to adhere to a laissez-faire approach like Canada.

In terms of the decline in Canadian corporate champions in recent years, examples include: BlackBerry going from global smartphone dominance to has-been; the crumbling of Ontario’s auto sector; the dismantling of Bombardier as a major aerospace and transportation company; and now Canadian oil companies falling out of investor favour as the world becomes increasingly serious about decarbonation.

If Canada is to avoid becoming the next Argentina (see Argentina’s Cautionary Tale For Canadian Economy), it is imperative the federal and provincial governments work with private industry and research institutions to boost innovation. As a first step towards hardcore industrial policy in the country, the feds should establish a sixth innovation supercluster, the clean energy supercluster, based in Calgary and in conjunction with at least the Alberta government.

Not so superclusters

In 2015, Justin Trudeau made innovation a central plank of the Liberal party’s election platform, referencing ‘innovation’ 10 times and promising to establish a national innovation agenda if returned to power after almost 10 years in the political wilderness. Within weeks of winning a majority mandate in October 2015, Prime Minister Trudeau recast the industry ministry as the innovation, science and economic development — since changed to the innovation, science and industry — ministry to lead the charge.

The core of the Trudeau government’s innovation strategy has been the Innovation Superclusters Initiative (ISI) launched in May 2017 to transform five “regional innovation ecosystems and develop job-creating Superclusters of innovation, like Silicon Valley.”

The five superclusters are Digital Technology, Protein Industries (PIC), Next Generation Manufacturing (NGen), Scale AI and Ocean — based in British Columbia, Prairie Provinces, Ontario, Quebec and Atlantic Provinces, respectively. The feds provide $950 million over five years — to be matched dollar for dollar by the private sector and other levels of government — to support collaboration between Canadian businesses of all sizes and other innovation actors, including post-secondary and research institutions.

However, to date, the Trudeau government’s quasi-laissez faire efforts to boost innovation have been a flop based on Canada’s continued downward trajectory in the Bloomberg Innovation Index, a recent report by the Parliamentary Budget Office (PBO), and an open letter from the Council of Canadian Innovators (CCI) — made up of 133 tech CEOs —to Prime Minister Trudeau on Oct. 27.

The PBO report, released in early October, noted that the feds had been slow spending federal money as of March of this year, with most funds going towards administrative costs, while casting doubt on ISI targets for job creation and GDP growth — 50,000 jobs and $50 billion over 10 years –— by boosting innovation in Canada. Experts in the area have since argued the assumed multiplier of roughly 50 times for such a small amount of federal spending was unreasonable in the first place.

The open letter from CCI accused the Trudeau government of innovation drift after promising to re-establish Canada as one of the world’s most innovative economies. “We see less of a bold, cohesive plan for innovation in Canada and more of a patchwork — pilot programs and furtive policies rolled out in hope they will amount to something greater than the sum of the parts,” said the letter.

Jim Balsillie, the former co-CEO of the maker of the BlackBerry smartphone, who helped create the CCI five years ago, has long been a proponent of Canada adopting robust industrial policy backed by substantial public funding to help tilt the playing fields for emerging industries in our favour. The choice is simple, join the countries that do, or get left behind, according to Balsillie.

Clean energy supercluster

A clean energy supercluster based in Calgary, and supported by hardcore industrial policy, appears to be a great idea for numerous reasons. These include:

  • a massive global opportunity, as the International Energy Agency (IEA) is warning roughly half of the greenhouse gas (GHG) emission reductions required to avert catastrophic climate change in the coming decades must come from technologies that have yet to be commercialized;
  • the comparative advantage Canada has in clean energy technologies, as recently identified by Industry Minister Navdeep Bains;
  • the goodwill of the siting of the supercluster in Alberta would benefit the feds, at a time of rising Western alienation;
  • a large number of highly trained, but unemployed energy workers in the region;
  • and the massive amount of vacant and very affordable office space in downtown Calgary.

But I have one major caveat for Canada adopting industrial policy in the clean energy sphere, or any other. In the summer of 1990 I worked for the Japanese politician Fukushiro Nukaga, a vice-minister at the Ministry of International Trade and Industry (MITI) — the ministry widely credited with developing, guiding and funding the industrial policy that powered Japan’s post-Second World War economic miracle.

The one thing that stood out for me about all of the bureaucrats working for Nukaga at MITI was their extreme intelligence. Everyone one of them was either Japanese or U.S. Ivey League — mostly graduates from Tokyo University and Harvard, respectively — many with a multidisciplinary educational background. Never have I been more intellectually stimulated or challenged, and as the years passed, I came to realize most of them had a great deal of vision about the future.

In contrast, I’ve noticed strategic planning processes of Canadian governments tend to be much more democratic. In Alberta, for example, the government of the day will canvass a wide range of stakeholders, using a bottom up rather than a top down approach to develop policy, with the Alberta Research and Innovation Action Plan, Alberta’s Recovery Plan and Alberta’s Natural Gas Vision and Strategy relatively recent examples. Unfortunately, all of these have quickly shown a lack of vision, fatal for successful industrial policy.

As a result, if Canada is to adopt robust industrial policy in the clean energy sphere, I highly recommend the feds hire the best of the best to guide it, and create a freestanding institution free of political meddling as the epicenter of the clean energy supercluster — the Canadian Centre for Innovation and Clean Energy.

And my absolutely first choice to lead the new centre, partly to help attract other world-class talent in its first few years of existence, Mark Carney, the former governor of the Bank of Canada and the Bank of England. Yes, he would be slumming it based on his highfalutin CV, but given his well-known commitment to combating climate change and the fact he was raised in Edmonton we could get lucky for the right price.