Magazine article Ivey Business Journal Online

Driving Canadian Innovation

Magazine article Ivey Business Journal Online

Driving Canadian Innovation

Article excerpt

As notorious Italian Renaissance historian Niccolò Machiavelli famously put it: "There is nothing more difficult to carry out nor more doubtful of success nor more dangerous to handle than to initiate a new order of things. For the reformer has enemies in all those who profit by the old order, and only lukewarm defenders in all those who would profit by the new order, this lukewarmness arising partly from . . . the incredulity of mankind, who do not truly believe in anything new until they have had actual experience of it."

But while coming up with new and better ways of doing things is challenging, there is no question that taking innovation to market is even more difficult. That's why Bill Morneau, Canada's finance minister, should be applauded for his unprecedented focus on innovation, which he outlined in his March 22, 2017 federal budget.

Canada's economy clearly could use a blast of innovation. After all, between 2005 and 2015, productivity averaged only 1 per cent per year, while economic growth averaged just under 2 per cent. Unfortunately, despite public policy talk of supporting innovation, government does not go far enough to provide incentives for innovation. Indeed, the stimulants currently in place are inadequate to produce the high-performance economy that Canada requires.

Incentives affect behaviour. That three-word idiom is the cornerstone of economic thought. So to help the Canadian economy return to the 3-4 per cent growth rates of our past, policy makers should consider the following three strategies.

IMPROVE RETURN ON INNOVATION: Innovators credit various diverse motivations for their achievements. However, a common desire among the best of them is compensation for the risks, stresses, and long hours that are synonymous with innovation. Keep in mind that intense drive for innovation can be a serious drain on physical, emotional, and financial resources. The prospect of financial failure and complete loss is very real, and a tax rate above 47.7 per cent awaits those few who succeed if they earn more than $204,000 per year (53.3 per cent in Quebec, 53.5 per cent in Ontario, and 54 per cent in Nova Scotia). That just doesn't cut it as an incentive. Meanwhile, capital gains and options gains stand alone in our system as financial incentives to innovation. Their tax rates are half of ordinary income tax rates, but there is nagging talk of increasing the capital gains inclusion rate and taxing options gains as ordinary income. …

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