Transformational Gains Roundtable

February 1, 2018

Public Policy Forum, Ottawa

Check against delivery.

Thank you and good morning

I want to thank the PPF for partnering with us to convene this set of conversations across Canada.

Over the past several months, my colleagues and I have been pleased to host business, academic, and community leaders in Vancouver, Calgary, Toronto, Montreal and Halifax in a conversation about what we can do to strengthen Canada’s economic and social fabric, and innovative capacity.

As we embark on this sixth and final forum here in our nation’s capital, global events and powerful developments are creating new challenges that we, as Canadians, cannot ignore. Last week in Davos, corporate and government leaders deliberated over how to foster inclusive global prosperity, in a time of rising unrest and profound technological disruption. As my colleague Suzanne Fortier has recently noted, this disruption poses a major potential risk for Canada’s workforce – both current and future – and a challenge for Canada’s educators.

Moreover, for at least the past three decades, Canadian prosperity has been based on the pillars of liberalized trade policies and competitive corporate tax rates that attracted foreign direct investment and helped nurture homegrown enterprise. We have also relied heavily on exporting our natural resource commodities.

But we are now entering a time in which each of these pillars of our prosperity is in question:

  • Liberalized trade is being challenged around the world, but particularly in the United States, amid growing unrest over the unequal distribution of benefits from globalization.
  • Following the latest round of NAFTA negotiations in Montreal, the future of that Agreement is uncertain at best.
  • Our commodity-exporting regions already face growing challenges, thanks to trade disputes over softwood lumber and seismic shifts in the energy sector.
  • The new Trump tax bill lowers the US federal corporate tax rate below the Canadian rate, and strengthens incentives for businesses with global reach to consolidate or repatriate more of their operations in the USA – including up to $1 trillion in offshore assets held by multinational corporations.

Simply put, these developments challenge the status quo in Canada. And they require us to identify new sources of competitive advantage to sustain or enhance current levels of prosperity.

To be sustainable, such a strategy must leverage unique advantages that are more difficult for others to replicate. As one participant at our Toronto forum noted, “for generations Canada has succeeded by watching and following rather than taking risks”. Now is the time to embrace a new culture of risk-taking.

So what should such a strategy look like?

In an increasingly knowledge-driven world, well-educated talent and unique research strengths are exerting more influence on prosperity, and a far stronger magnetic pull on investment, than ever before. As former New York City Mayor Michael Bloomberg has famously observed, “talent attracts capital far more effectively and consistently than capital attracts talent”.

In this regard, Canada has a significant competitive advantage. Canadian universities – and their partner host city regions – are viewed extremely favourably around the world. Institutions like the University of Toronto – and the other universities represented here today – are recognized for their world-leading research and their well-educated graduates. For example, in this year’s survey of thousands of firms around the world by London-based Times Higher Education, U of T’s graduates were ranked 13th in the world for their employability, and first in North America amongst public universities. Graduates from other Canadian universities were also very favourably ranked.

The potent combination of our research stars and our highly regarded graduates is now exerting a powerful attractive pull on inbound corporate investment and driving local entrepreneurial dynamism. Witness the recent decisions by some of the world’s leading knowledge-economy companies to invest in Toronto, Montreal, Edmonton, Calgary, Vancouver and Halifax. Firms like Google, Facebook, Uber, Microsoft, Amazon, Tesla, Thomson Reuters, Huawei, Fujitsu Labs, Johnson & Johnson, GE Healthcare, and Bayer have been drawn to these cities recently. Their investments were not prompted by tax incentives but by the local concentrations of unique research expertise, highly educated graduates, and high quality of place. The decision by Amazon to shortlist Toronto’s bid for its ‘HQ2’ – a bid that offers no tax incentives, but instead focuses on talent, openness to immigration, quality of life and the regional innovation ecosystem – is yet another telling example. At the same time, the emergence of promising homegrown start-ups like Deep Genomics, BlueRock Therapeutics, D-Wave, Element AI, Fuse and others leverages our universities’ strengths in emerging fields like machine learning, genomic and regenerative medicine, quantum computing, cleantech, and more.

The talent-based approach I am outlining here holds some obvious and important implications for public policy.

  1. The importance of investments in education, at all levels, from early childhood through university or college; as well as finding new ways to enhance the resilience of our workforce by facilitating lifelong learning (as advocated by the Barton Advisory Council on Economic Growth);
  2. The key role of talent points to the importance of ensuring the openness and efficiency of our immigration system, taking full advantage of Canada’s positive and increasingly distinctive approach to immigration policy;
  3. The wisdom of investing in the livability of our urban regions – another one of Canada’s perceived unique advantages on the world stage; this lens will also help us remain focused on the need to pursue an inclusive prosperity strategy;
  4. Upping our investments in advanced research (as called for by the review panel chaired by David Naylor).

As MIT President Rafael Reif argued in the Wall Street Journal (December 5, 2016), to secure “…long-term security, prosperity, competitiveness and health, and for generations of lasting new jobs [countries like the US – and Canada – must renew their] national commitment to fundamental science.” It is from this investment that we as advanced societies will find truly “transformational gains.”

Federal support for fundamental research is critically important in advancing our understanding of the world and our place in it. It not only drives discovery and advances innovation, but also fuels talent attraction, retention and development.

On this last point, we learned some very striking things from our just-completed study of the last 10,000 PhDs to graduate from U of T. We learned that more than 40% of our PhD grads find careers outside academia – in the private, public, and not-for-profit sectors. Within the physical sciences, math, computer science and engineering, the private sector alone attracts fully 40 % of our doctoral graduates.

So clearly, our research enterprise is also a great training ground for highly educated talent.

We also learned that nearly half (46%) of our international PhD students remain in Canada after graduation. This represents a massive brain gain for Canada, one that we can enhance still further with the right policy mix.

Curiosity-driven, investigator-led research is the wellspring of discovery and innovation. But so too is applied research, where the development of new knowledge is driven by the need to solve real problems. Support for fundamental science, and support for innovation and commercialization are not in tension with each other. Rather, they are more like two ends of a continuum, with fundamental research serving as the source for so much of the innovation we see today. Governments often prefer to focus on the innovation end of the continuum – the output end – and discount the importance of fundamental science, the input end. But the two ends are intimately linked, and a comprehensive strategy for building prosperity must encompass both.

Hence, federal support for innovation, commercialization, and industry R&D are also critically important. We need to stimulate industry’s receptor capacity through incentives to hire more highly qualified talent. We need to stimulate local demand to support our own startup community, leveraging the scale of public sector procurement more strategically. And we need to foster the cluster dynamics that enable the joint production and sharing of knowledge between industry and academia to drive innovation.

The two forces of fundamental research and innovation-oriented applied research work in concert.

This is where ‘Naylor meets Barton’, if you will.

As I noted earlier, our success in “watching and following” while other countries lead in technological innovation has served us well in the past, but now is the time for us to renew our commitment to an investment in the people and talent that can drive our future economic and social gains.

I hope these thoughts will stimulate some conversations and I am looking forward to hearing the observations from our panelists today.