B.C. needs to step up its game on innovation

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A nimble economy requires innovation in such areas as tax policy, an educated workforce and immigration policy

The economic and business environment in which British Columbia operates is shifting and changes are necessary if the province is to remain vibrant.

A number of trends are transforming the global economy. The principal forces identified by the McKinsey Global Institute are: urbanization, particularly the rapid growth of cities in emerging markets; accelerating technological change and the rise of the digital economy; population aging and slower labour force growth; and the onward march of globalization, via expanding cross-border flows of goods, services, finance, people and data – a trend that is heightening competition among jurisdictions for capital, talent and high-value business activity.

These trends are reshaping the landscape for small economies like British Columbia, creating new opportunities for nimble regions, companies and entrepreneurs.

But they pose risks to businesses, governments and other institutions that are slow to move, resistant to change, or unduly wedded to past economic development models.

There is growing evidence that a stepped-up pace of innovation is the key to a more prosperous economy. The Conference Board of Canada defines innovation as the “process through which economic or social value is extracted from knowledge . . . to produce new or improved products, services, processes, strategies or capabilities.” Innovation is about more than technological breakthroughs, the high technology sector, or the introduction of new or better products; it also encompasses value-augmenting changes in organizational processes, management practices, manufacturing systems, service delivery, logistics, marketing, and the development and deployment of human resources.

British Columbia has a mixed record on innovation. We have been quite successful in fostering entrepreneurial business start-ups. We benefit from good post-secondary institutions, along with pockets of recognized excellence in genomics, health data, some other areas of health-related research, forestry, clean energy and a handful of other fields. The B.C. government’s Small Business Venture Capital Tax Credit, which encourages equity investments in promising businesses, is another positive feature of the province’s innovation ecosystem.

But B.C. sits below the Canadian average on several other dimensions of innovation. Those include investment in machinery and equipment, the extent and cross-sectoral distribution of private sector research and development activity, the pace at which firms take up and adopt sophisticated technologies, and the development of advanced skills.

B.C. punches below its weight within Canada in the number of university degrees granted per capita, notably in engineering, but also in computer and information sciences, management disciplines, the physical and life sciences, and some other fields.

How can government policy contribute to a more innovative economy?

First and foremost, British Columbia must continue to invest in developing well-educated, creative and technically skilled people. To succeed, more B.C. enterprises will need to quickly incorporate and leverage novel ideas and leading-edge technologies. The primary means by which firms do this is by tapping into the right kinds of skills and talent – much of it produced by our own post-secondary institutions.

Second, policy-makers should ensure that the tax system encourages and rewards innovation as well as business growth. This calls for a fresh look at the tax rules governing investments in machinery, equipment, software, communications technologies and other forms of capital that boost productivity. In Canada, small innovative firms would benefit from an expanded program of tax credits similar to those used to spur mineral exploration and development. The dramatic increases in statutory income tax rates that apply as businesses expand should be reconsidered; in some respects, the existing business tax regime in B.C. actually creates incentives for firms not to grow, which makes little economic sense.

Third, government procurement markets can be made more open to homegrown innovators. Public sector purchases of goods and services amount to 15 per cent of all spending in our economy. Too often, innovative B.C. companies are frozen out of public sector markets. Most of the countries that outscore Canada in global innovation rankings do a better job of leveraging public sector procurement to drive domestic innovation.

Finally, smart immigration policy can stimulate innovation. Ambitious B.C. companies with the capacity to grow and the desire to participate in global markets need to access managerial and specialized technical talent that can’t be sourced locally. Federal and provincial immigration programs must be retooled to reflect this. Instead of immigrant investors, Canada should be seeking immigrant innovators and looking to foreign students with Canadian (or U.S.) university credentials as the most desirable pool of potential newcomers.

The trends are clear. So is the path British Columbia’s economy must take if the province is to remain vibrant.

Jock Finlayson is Executive Vice President of the Business Council of British Columbia.

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