With Canada facing sluggish economic growth, politicians across Canada have been talking up innovation as a key to creating jobs and wealth, including the government of Prime Minister Justin Trudeau, which has promised to deliver new policies and programs to support innovation in the coming months. Serving as an inspiration for Canadian innovation policy makers is the United States, home to the globe's leading innovation hub, Silicon Valley, and a government that, under President Barack Obama, has actively engaged the leadership of top technology companies for economic advice.
The Globe and Mail's Sean Silcoff recently met with Jason Furman, chair of the U.S. Council of Economic Advisers and Mr. Obama's chief economist and cabinet member, at a conference on machine learning hosted by the Creative Destruction Lab at the Rotman School of Management in Toronto.
The following is an edited transcript of their conversation:
Innovation seems to be an obsession of Canadian political leaders. What are your thoughts on building an innovation-based economy?
Innovation is central to the economy. All advanced economies have seen slower productivity growth in the last decade. … If that doesn't change, it will be impossible to have the type of sustained wage gains and successes for middle-class families we'd all like to see. Silicon Valley has produced some really important innovations for the U.S. and for the world. It's helped solve problems, it's helped raise wages. But we don't know exactly what created it.
There are a lot of countries who have come to the United States and asked us, 'What can we do to have our Silicon Valley?' Part of the answer to that is the U.S. government didn't sit down and say, 'Here's this place in the country, we're going to create it, we're going to make it grow.' It emerged.
Looking at its emergence, we can draw some lessons. One is that education is absolutely central. A lot of business people get worried about regulations. For example, there are a lot of places in the U.S. with a lot less regulation than California. They are not where this emerged. [Another issue] is immigration. That is something Canada is really a model for, for people and their ideas. And the U.S. is, I think, actually shooting itself in the foot by not reforming our immigration system and bringing in more talented people.
There's this debate over short-termism in the economy. I don't believe it, because I look at venture capital companies. They're looking really long term, and financing at every stage, from the initial early stage to taking it to scale.
So having a rich, diverse, capital market matters. These are some of the ingredients.
What is the role for government in supporting a technology ecosystem?
There are several different places where the government matters.
The first is just in the negative, that most innovation should be permission-less, nobody needs to ask to invent a new idea. But basic research is really critical, that research that doesn't have an immediate payoff. That has substantial spillovers to others and has been critical in everything from the Internet to artificial intelligence to autonomous vehicles. That's one respect in which I'm worried, in that our basic research funding [in the United States] has been declining.
[Another role for government] is setting goals – climate change would not be a goal that innovators would be trying to solve were it not for in part the government raising awareness of that, in part for people understanding regulations are here or are coming, and this innovation could help us keep up with those regulations and succeed.
There's also infrastructure. For example, wireless broadband requires spectrum. Spectrum is managed by the government, and we've put a big effort into freeing up more spectrum so you're not hitting a spectrum crunch that's going to choke off innovation. But we also have to be very aware – I don't think governments can pick winners or losers. There are all sorts of investors making bets on the future, some are going to be right, some will be wrong. What you want is a system in which that happens, not in which someone thinks they know the answer.
What are the biggest mistakes governments make when it comes to supporting innovation?
One is to not let as many talented people into your country as want to come. A second is an overly industrial policy approach. … You just aren't going to have 50 clusters for biotech in Canada. And recognizing there's a limit to how many clusters you can have, where they can be, and your ability to see what they are and shape what they are. Third, innovation is not just the latest, most exciting thing [such as artificial intelligence], it's also a craft industry to make better furniture and other things. Different places will be suited to different things. … Not everything is going to be the latest and greatest trendy cutting-edge topic.
How can government work best in supporting innovation? In Canada there is talk of emulating the U.S. Small Business Innovation Research program [in which government helps small businesses commercialize new technology by asking them to develop solutions to government problems].
The U.S. government has more venture capital than most people would appreciate, much of it through the small business administration. If you look at some of our more successful companies like FedEx, they originally came through that system. … As much as we all believe in capitalism and free markets, there have been a number of times and places where the government has helped fill those [gaps].
When we're doing procurement, the most important thing is that the government is getting good value for its money, not serving a social purpose, and that it can save money. … But sometimes you can actually find win-win opportunities to use procurement, use contracting, use the other things that you're already doing to recognize the broader spillovers that result from your actions.
If you were advising any government, what two or three things would you say need to be put in place to show it is serious about building an innovation economy?
No. 1, recognize innovations are going to come from the private sector, and that you're not getting in the way of that. No. 2 is encouraging your universities to form partnerships with businesses, with non-profits, and make themselves a centre and a hub of innovation. Third, make sure you're doing the basic research that businesses are not going to have the incentive to do.