Canada’s “Innovation”* Problem – Diatribe Of My Top 5ish Anecdotal Reasons

In response to ongoing hand wringing over Canada’s poor “innovation” scores and the ways, this hot take will be continually updated, will not reference anything more than anecdotal data and despite that serious shortcoming will probably be more insightful than most diagnoses of Canada’s “innovation” problem. If you are from government, please skip to the bottom of the list and read my recommendation for government first.

Important point: startups and innovation are not the same thing. The concern is broader than startups and applies to medium and large businesses as well, just in different ways. But remember the stats from the US about how new jobs (typically created as a result of successfully commercialized innovation) largely comes from startups.

In no particular order:

• The Struggle. And the Struggle obliterates entrepreneurship.

It is really expensive for people under 40 to live a “normal” lifestyle, at least without resorting to the tax evading/cash economy common in many places at least in Toronto.

How much do you have to spend to achieve a certain quality of life (call it middle class with an iPhone living in a major city with a margin of safety and not living paycheque to paycheque)?

Income tax + sales tax + property tax + it costs $800k to buy a small family home + salaries are paid in CAD while so many goods are imported and probably priced in USD to start with + gas tax (and implicit tax of higher energy prices due to insufficient pipeline capacity and fewer refining capacity) salaries are less in Canada + all the taxes on Canadian businesses built into price of goods + childcare + saving for retirement!?! = *really* expensive for that quality of life. I don’t want to calculate my amount of cash left over after all of that for things I WANT to do (like start a business) – effective tax rate above 75% for any dollars earned in top marginal bracket? Take a few minutes and look at the microeconomics of a typical young professional in a major city in Canada. It is a struggle even before considering wealth accumulation. This should be our modern Misery index and what government should try to improve.

Ask a Canadian who has moved to the US how “easy” it is to have a comfortable life relative to Vancouver/Calgary/Toronto.

And when people under 40 are dealing with that, how many of them have money and time left over to become entrepreneurs, or at least entrepreneurs where someone takes a new technology or invention and tries to make non-sustaining innovations – the heart of a business good enough to export goods and services abroad or on the Internet. The calculus makes it a really tough call. Or a compelling reason to leave Canada.

• Commercialization is hard, not taught and totally stigmatized in Canadian culture.

Commercializing an invention is hard. The skills which go into it are varied, dynamic, different for different verticals, difficult to quantify and hard to learn and practice.

And guess how many university courses there are for this? High school? Continuing education courses? No, this is pretty much a mentorship and on the job type thing with little formal instruction from our benevolent public educational institutions. That should be fixed.

Recommendation: get retired business owners and people who have commercialized innovation into their communities to teach a flexible curriculum of commercialization and give people tax incentives to do it. Treat it as if it were a wartime thing because this stuff really matters!

PS – you marinate Canada’s children from ages 6–22 for most of the week with people who essentially have permanent government employment with no incentive to take any risks (no upside for them, and only downside as might lose their permanent employment), and in a culture which vilifies business people as greedy capitalists, and you are surprised that (1) Canadians have a culture averse to risk taking (especially considering the Struggle), and (2) nobody is oriented towards learning to become a commercializing innovator until their 20s or 30s when they realize how harmful all of the above is.

• Small addressable market.

Difficult to get off the ground when your addressable market nearby is small, there is little patriotism to Buy Canadian, the culture is averse to risk taking, and everyone is going through their version of the Struggle.

Thankfully the Internet has and continues to make this better by opening up the world.

• Access to capital and skills remains a challenge.

In the absence of funding from FCF, we’ve all seen the issues about access to capital for startups and the so called valley of death. VC network and aggressiveness is much smaller than top few cities in US. Angel network is much smaller. More conservative investor base and public investors if one is an established business. A big reason to leave Canada to do this.

In any major city, there is less aggregate technically or commercialization skilled people than a major US city. Plus many of the really good people (remember, commercialization is hard!) leave (Struggle, reasons discussed above) and you have a negative feedback loop taking many of the good people who can facilitate innovation and putting them outside Canada.

• Yeah culture is an issue.

Canadians are wonderful people (some people from Vancouver are a bit smug about how great Vancouver is – these folks need to travel to see its shortcomings so they can lose the attitude). Changing culture is not without its drawbacks, which may outweigh the positives.

But, you have to acknowledge how our culture impacts our risk taking in commercializing or making useful inventions that we come up with. And it’s not positive. Although one major point worth making is that having a publicly funded health care safety net is a supporter of risking all you have to start a business. This is a really good thing (it being illegal to buy an MRI for a human but legal for a cat is the subject of another discussion).

I’ve discussed some of the reasons why above. Some others: there is no strong centralized threat to existence (Israel) / struggle to make it with much larger neighbours (Singapore) / geographical necessity to work together to survive harsh environment and warring neighbours (Switzerland) which brings people together in a common cause to achieve great things for the country and its wealth; apathy towards the quality of government and bureaucracy; apathy and lack of desire to fund towards military and military research for its virtues (eg US Navy largest provider of aid around world; many crucial inventions of last 100 years have come from military research eg computers and Internet); apathy towards working together to advance human race (eg manned interplanetary travel and colonization). Also, and this doesn’t help, we have a resource base which means we don’t have to solve this issue, we just sit back and wait for next commodity cycle (which rises every few decades like the Sun, right? Right?) to have the petrodollars come back. No need to work hard to solve how to get a comfortable living for country problem.

There is a lot to dig into here. Not aware anyone has done it yet.

• Government, Facilitation and Doing.

Hand wringing around innovation by government is annoying and unproductive. Need more “innovation”? Then you need more people to do that innovation. What do you mean by innovation – is it the commercialization of inventions? Structure incentives by making the payoff big, fund commercialization training and import people who can commercialize from other countries (did you see the top 5 names of entrepreneurs in Italy that came out this week?) and make them not want to move to the US afterwards. Is it entrepreneurship? Fix the microeconomics and the Struggle.

At the end of the day, people (including people using AI tools) are the ones doing the problem solving. So there is no fancy agenda. You don’t need to pay consultants to consult or bureaucrats to facilitate. You need to get people to innovate. Focus on incentives, whether it’s government scientists or entrepreneurs or existing Canadian firms. Who does what better? Get BS out of their way, educate them amazing people who stay in Canada, give them access to capital that is not distortive and reduce barriers to trade.

And finally, start working on the cultural issues at the root of the problem. This is the long term wellbeing of Canadians at stake, especially with globalization and the increase rate of technological change impacting Canada’s labour market, and it is just as important as any war. It is also far more deserving of multiple billions of dollars than “infrastructure”.

• Pet peeve: Colony -> Nanny State

Canada was probably the best treated by the British during the height of the British Empire. However, we still started as a colony, and what were originally colonial policies (eg fear of insurrection due to alcohol fuelled riots) were ingrained in Canadian society and even in the constitution when Canada became a nation and de facto colony until the World Wars.

Some of that persists today, such as alcohol policies. You can’t trust the replication of a policy permitting a pub to have people drink a pint outside like in London, or a beer as I walk through the grocery store, or a bottle of wine with a pizza down by the beach, because I can’t be trusted but the government knows how to govern this part of my life, but you want me to create world beating products? It’s insulting and doesn’t help the problem. Stop the nanny state garbage like this and empower people to go do amazing things.

• * This word ties disruption for people ignorantly using it, confusing what it means and reducing our ability to effective communicate about how to achieve, fix or harm it. I use it in the form of “achieve utility from an invention” where “achieve utility” is a ham handed expansion of the term commercialize because innovating is more than just taking something to market and winning share. Invention is the typical definition.