In Tough Economic Times, Canada Needs a Robust Innovation Strategy to Succeed 

There is no doubt that inflation has been devastating. Food inflation alone has forced many to choose between food on the table or medicine in the body. 

To contain inflation, interest rates were hiked and most agreed that the tightening of monetary policy was necessary, despite the resulting economic slowdown.  

Rising interest rates made Canadian homeowners with variable mortgage rates more vulnerable to fluctuating payments, and those who bought at extremely high prices with low interest rates fear the prospect of having to renew their mortgage at significantly higher rates. 

However, we can’t miss the proverbial forest for the trees. While rising interest rates significantly affect those with high debt loads, inflation also impacts the lowest income earners who must stretch a dollar even further than they already do. 

Higher interest rates have curbed economic growth, and many believe a recession state-side is likely — and that, at best, Canada will remain in a slow- to no-growth mode, if not in a recession itself. In addition, the carbon tax and the new clean fuel tax have slowed growth and punished those consumers with no option of public transit or an electric vehicle that can’t withstand the cold. It’s also killing our farmers — the very people who feed us and the world!  

We’ve had mixed messages from the Bank of Canada, but the latest rate hike on June 7, 2023, is a wallposter. These are not necessarily incompatible messages, just cautious realism that this will take time and there will be bumps in the road. We’ve seen some signs the economy is coming back, with consumer spending higher than expected — but that may be just more spending to get the same or a smaller grocery basket! But the Bank of Canada has moved anyway. 

Low unemployment is good, except that it risks new wage pressures. Still, employment has remained steady as many workers are still not back in the market or are working part time from home. More concerning is that a lot of the job creation has been within a growing federal bureaucracy. 

At some point the government must realize you can’t spend your way out of inflation and when you do, it should be constrained, more targeted and have measurable outcomes — because the more you inject into the economy, the more you poke the inflationary bear. 

What we do need is innovation and business investment. 

Canada produces world-class research but fails to capture the benefits through commercialization of our intellectual property (IP). In clean technology, Canada owns less than 1% of global IP. For a country that produces some of the cleanest energy in the world, there’s no excuse! 

Today, more than 90% of corporate value is in intangible assets: things like apps, code and ideas. Subsidizing foreign companies like Stellantis and Volkswagen may bring jobs to Canada, but all the real value of innovation and IP will be captured by those foreign jurisdictions, not us.  

These subsidies are not part of an investment and growth plan. They are a jobs plan. The announcements are political winners, but they aren’t going to make Canadian innovators more competitive in the global market.  

If Canada doesn’t have a strategy to keep the value here at home, then the federal government’s multi-billion-dollar programs are just a massive transfer of wealth to foreign companies and countries. 

Competition helps constrain inflation over the long term, so we need to invest in building an environment where Canadians are encouraged to innovate, expand and stay in the game. We should unleash our entrepreneurial inner self and change attitudes toward risk. A growth strategy is not a series of random incentives that get companies ready for sale rather than expansion and growth. 

Let’s also clean up our regulatory maze of often conflicting rewards and punishments. It’s a disincentive, especially for foreign capital. 

With our resource-rich economy and access to education and health care, we could most definitely be doing better. And we must, because the United States continues to outspend Canada 10 to one — and U.S. President Joe Biden’s Inflation Reduction Act has changed the game by putting nearly US$400  billion on the table for clean growth. 

Senator Pamela Wallin 

Senator Pamela Wallin represents Saskatchewan. She is chair of the Senate Committee on Banking, Commerce and the Economy. 

TAN

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