Innovation isn’t in Canada’s DNA

Can John Manley jump-start our lagging global competitiveness?

by Paul Wells

Innovation isn’t in Canada’s DNAI caught up with John Manley by telephone at his eastern Ontario cottage, where his summer vacation was already drawing to a close. The former Liberal minister, who served as deputy prime minister in Jean Chrétien’s last years as PM, will have a busy autumn.

Manley has had five years of relative calm as a corporate lawyer and member of assorted blue-chip boards—Canadian Pacific, CIBC, Nortel. Well, the Nortel chip used to be blue, anyway. He did agree to run that Afghanistan panel for Stephen Harper, a decision that earned Manley a lot of detractors in the Liberal party. But then, he never was much good at passing tests of ideological purity.

Which makes his next destination an interesting pick. In October he’ll move into the offices of the Canadian Council of Chief Executives, and on New Year’s Day he’ll become the group’s president and chief executive officer. The CCCE—you may remember it under its old name, the Business Council on National Issues—is a club for 150 chief executives of Canada’s largest corporations. Its members claim $3.5 trillion in assets and $800 billion in annual revenues. This is the voice of big business in Canada. So it’s an open question whether it can also be the voice—quirky and unpredictable as his has sometimes been—of John Manley. He intends to find out.

But I didn’t call Manley just to quiz him about his new job. As you’ll see elsewhere in this issue of Maclean’s, a few of us recently interviewed the presidents of Canada’s largest research universities. One of them, the University of Toronto’s David Naylor, called for a first ministers’ conference on the innovation economy. University funding and the role of higher education would be part of it, but in Naylor’s view the need to put new ideas and techniques to work in the economy can’t be restricted to what goes on at universities. Naylor’s colleague, Heather Munroe-Blum of McGill University, agreed. “Having industry leadership there with government and universities is absolutely crucial,” she said.

Well, then. Would Manley, in his new role, want to join governments and academia in trying to build a smarter, more competitive economy? You’re right. I knew the answer before I asked the question. “Absolutely I would be interested in being part of that and contributing to it,” he said.

He was careful to emphasize that his opinions are his alone. He won’t be speaking for the CEOs until he is in charge of the CCCE. But Manley has a lot of history on these issues. As industry minister in the ’90s he used to say Canada runs a marathon against the rest of the world every day. He hasn’t changed his mind.

“Innovate or perish. The world is changing so quickly that the inability to find ways to adapt to the changing environment is detrimental, not only to the business sector, but to the country’s prosperity as a whole.” And for the moment, at least, he’s not shy about attributing some of the responsibility for our lagging competitiveness to business.

“I don’t think you could say that innovation is deeply in the DNA of our Canadian business enterprises,” he said. “We have built prosperity, up to and including this decade, on a fairly basic paradigm: we are rich in natural resources. We’re good at harvesting them. And we have built a manufacturing and processing sector, and to some degree a services sector, which has been quite successful in exploiting access to the U.S. market.”

So Canadian business often doesn’t do much more than build factories 20 km north of the U.S. border and lob products 50 km south. For years, that model got a lot of help from a cheap Canadian dollar. “I got into a certain amount of trouble when I was deputy prime minister for saying you shouldn’t mistake a bull market for brains. The fact that the Canadian dollar was trading at 62 cents . . . you shouldn’t take that for granted.”

And now that the loonie is trading a lot higher? It’s time to ask hard questions about why homegrown businesses don’t often succeed, not just at short-haul exports, but in a truly competitive global market. Research in Motion is one example of a Canadian start-up that thrives on high-technology exports. “Most of the others have died on the vine or been acquired by U.S. investors and moved out.”

Export focus has been lacking, then. So is an entrepreneurial class that knows how to grow a company past the start-up stage. “What you see, especially in small, technology-driven businesses, is a shortage of people who know how to grow them, how to manage them.”

So what? So the rest of the world will run these marathons whether Canadians do or not. “One day you wake up and there’s a company called Huawei,” Manley said, naming a burgeoning Chinese telecom giant. “[People say,] ‘They make crap, we don’t have to worry about them.’ Well, five years later it’s not crap anymore, and their prices are a fraction of what the established equipment suppliers are selling.”

So this week we bring news that the leaders of Canada’s largest universities, and the next leader of the country’s biggest business group, see challenges facing the country that governments have to address. Here in Ottawa for the last few years, we have all enjoyed an entertaining vacation from long-term thinking. But vacation’s almost over.




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Innovation isn’t in Canada’s DNA

  1. Which makes his next destination an interesting pick.

    Why, the CCCE is the logical destination for an unimaginative person like Manley and I look forward to his promotion of "innovative" ideas such as more corporate tax cuts, more free trade and more government investment in business infrastructure.

  2. "What you see, especially in small, technology-driven businesses, is a shortage of people who know how to grow them, how to manage them."

    This belies the headline "Innovation isn't in Canada's DNA". There is lots of innovation in Canada, but there is clearly a deficit in business management. I have worked for a series of hi-tech startups. In each case, the failure to succeed is the result of weak backing and poor management. But perhaps, just like with the entertainment business and the lure of California, the best and brightest cannot resist the call of Silicon valley and other success centers in the States.

    • Bill, I think you are absolutely right about the deficit in business management, and to your point-
      the failure to succeed is the result of weak backing and poor management
      I would add – weak marketing and access to markets.

    • Nortel is a great example of this. The company was completely undone by massive debt taken on at the height of the tech bubble. Otherwise it would be humming along now.

      Anyway, the CCCE is a perfect fit for Manley, given the penchant for dishonest conservativism and plagarism he has shown in the past.

  3. Manley seems like the right guy to lead CCCE. I wish him the best of luck in his important new role. Canadian businesses certainly need some long-term thinking to be technologically competitive in the coming decades.

    • Are you for real?

      • No, I'm a figment of your imagination. Seriously, I like Manley. I wish he was the Liberal leader, rather than Iggy.

        • In terms of pragmatism and policy, I totally agree, Manley would be great. It's too bad he's kind of lacking in the charisma department, though. It's shallow of the electorate & media that this has made him not leadership material, but whatta ya gonna do?

          • Harper is also lacking in the charisma department, and he's PM. I think Manley would have been a surprisingly competitive candidate, had he been in the leadership race to replace Martin.

            It's too bad that Manley was crippled by internecine Liberal squabbling.

          • Oh so totally agreed. Put Manley in charge of EITHER leading party and it gets my vote.

          • Manley's problem is that he's too pragmatic to be innovative.

          • Just curious…are you saying that pragmatism and innovation are opposite ends of a single spectrum? I suspect you aren't, but I'm not 100% sure. I would put risk-averse as the opposite of innovative.

            Asking because I'm not sure that pragmatism is necessarily a death knell towards innovation. A pragmatic person might actually do a great job of knowing when to be innovative and when to walk away from a money pit.

            Thanks

  4. We are not very innovative because big government and big business strangle the little guys with red tape and a variety of other policies that make it extraordinarily difficult for them to innovate or compete.

    I don't know the answer to how to get our entrepreneurs, scientists and inventors working together better but I do know the answer is definitely not more government and big business intervention in the market.

    • Can you cite an example of the red tape or policies that are strangling the little guy and making it difficult for them to innovate or compete?

      • Sure. Access to credit, bankruptcy laws, interprovincial trade barriers, high taxes ….

        It is the mindset of government, and others, that we are subjects – not citizens – and we need protection from ourselves.

        I think Toronto and the rigmarole to get food carts on the streets is perfect example. I just googled to see where they are in process and this is what I found:

        "Just a handful of people have proved willing to negotiate miles of red tape and pay tens of thousands of dollars for the right to sell you street food more interesting than the lowly hot dog.

        Eight vendors will finally be allowed to peddle their ethnic specialties in May, ranging from jerk chicken to bulgogi to pad thai – homey, cheap, open-air versions of foods already well-loved by the city's sophisticated restaurant diners.

        It's been a long time coming. Nearly two years have passed since Queen's Park amended regulations to expand the cuisine on Toronto's streets beyond hot dogs and sausages. But actually bringing in the variety of street foods that flavours other cities around the world quickly got mired in red tape in Toronto.

        City officials were keen to control the process, citing concerns about food safety, nutrition and preventing conglomerates." Toronto Star, May 19, 2009

        If Toronto Star is complaining about red tape, I can only imagine what those eight entrepreneurs had to go through to be allowed to open a food cart to sell some bulgogi.

        • Yeah lets forego food safety in the name of more bulgogi.

          • I'm sure the average food cart bureaucrat believes they're the only thing standing between their loyal subjects and a worrysome outbreak of diarrhea, but most adults are capable of deciding – based on visible clues – whether or not they should purchase the food offered by street vendors.

            I'd wager far more people get food poisoning in their own homes than from carnival vendors, etc.

            Help me government! Inspect my kitchen! I need protection from myself!

        • None of what you wrote cites any examples of red tape or policies and your business example fails to address how this vague red tape has stifled innovation or the ability of the vendors to compete. In fact with regard to the latter, it would appear this vague red tape makes it easier for these select few vendors to compete since they face far less competition than they might otherwise.

          • 10 electrical codes all slightly different. Want something more specific?

        • Good example. Got another one?

        • The City of Toronto's Public Health Department is known for erring on the extreme side of caution. During the 03 blackout, the chief medical officer advised that you thrown out ALL food if your power had been off for more than 6 hours, in spite of the fact that most peoples freezers when left alone were still perfectly frigid. I'm open to debate on this, but agree that this extreme caution has led to too much red tape for potential food vendors.

          However, I fail to see how this isolated, health-related example you sight proves that any and all business start ups in Canada in the manufacturing or high tech sectors are strangled by red tape.

      • Not being able to write off advertising costs if spent outside of canada.

        The real possibility that if you grow your idea into a company, you will not be able to sell it to willing buyers. Most innovation is done by small entrepreneurs who sell their idea to someone big enough to bring it to market.

        Go pick up a small business brochure for your province, if they have one. Read the pages on all the various acts and commissions. It goes on and on.

        Derek

  5. "“I don't think you could say that innovation is deeply in the DNA of our Canadian business enterprises,"

    That's rather different from the headline to this post, I must say.

  6. Manley sat on the Board of Directors of Nortel. The Board of Directors of Nortel were complicit in the obliteration of Nortel. Why isn't Wells asking Manley the tough questions about his culpability in the destruction of Nortel? Why did the Board of Directors of Nortel sell out the employees and former employees and pensioners of Nortel so Nortel top executive leadership could loot the remains of Nortel with exceesive retention bonuses in bankruptcy?

    Manley sat on a BOD at Nortel who hired a CEO whose only strategy for Nortel was to cost cut by shipping Canadian high tech jobs to Asia, to Mexico, and to Turkey.

  7. I went to a talk once by a successful Silicon Valley entrepreneur who was there from the beginning, and we asked him why Canada seems to be incapable of something similar. His response was very interesting and went something like this (from memory):

    " In Canada you have this attitude that a new business is supposed to succeed. If it fails, then the entrepreneur should get a job. In Silicon Valley we have the opposite attitude: you can't be taken seriously until you've started at least two failed businesses. Entrepreneurial failure for us isn't a disgrace: it's a badge of honour."

    One can extrapolate to other societal conclusions from this observation about our preference for risk-averse easiness to risky indpendence, but perhaps that's best left for another thread.

  8. I went to a talk once by a successful Silicon Valley entrepreneur who helped build the place, and we asked him why Canada seems to be incapable of something similar. His response was very interesting and went something like this (from memory):

    " In Canada you have this attitude that a new business is supposed to succeed. If it fails, then the entrepreneur should get a job. In Silicon Valley we have the opposite attitude: you can't be taken seriously until you've started at least two failed businesses. Entrepreneurial failure for us isn't a disgrace: it's a badge of honour."

    One can extrapolate to other societal conclusions from this observation about our preference for risk-averse easiness to risky indpendence, but perhaps that's best left for another thread.

  9. I went to a talk once by a successful Silicon Valley entrepreneur who helped build the place, and we asked him why Canada seems to be incapable of something similar. His response was very interesting and went something like this (from memory):

    " In Canada you have this attitude that a new business is supposed to succeed. If it fails, then the entrepreneur should get a job. In Silicon Valley we have the opposite attitude: you can't be taken seriously until you've started at least two failed businesses. Entrepreneurial failure for us isn't a disgrace: it's a badge of honour. This is why we have so many successful start-ups – they are all preceded by ten times as many failed start-ups but the innovators learn from each experience."

    One can extrapolate to other societal conclusions from this observation about our preference for risk-averse easiness to risky indpendence, but perhaps that's best left for another thread.

  10. I went to a talk once by a successful Silicon Valley entrepreneur who helped build the place, and we asked him why Canada seems to be incapable of something similar. His response was very interesting and went something like this (from memory):

    " In Canada you have this attitude that a new business is supposed to succeed. If it fails, then the entrepreneur should get a job. In Silicon Valley we have the opposite attitude: you can't be taken seriously until you've started at least two failed businesses. Entrepreneurial failure for us isn't a disgrace: it's a badge of honour. This is why we have so many successful start-ups – they are all preceded by ten times as many failed start-ups but the innovators learn from each experience."

    One can extrapolate to other societal conclusions from this observation about our preference for risk-averse easiness over risky indpendence, but perhaps that's best left for another thread.

  11. It would be unwise for Canada, especially Ontario, to assume that it can rest on it's laurels and watch the world go by. Sure, we can do that and the world will go by. Without us.

    Canada is a great country as defined by our resources , constitution and populous. But we're not invincible to change and therefore should never let our guard down.

    In today's Toronto Star, Richard Gwyn had a most illuminating article re the current strike in Toronto. he quoted Mao Zedong's comment that, power grows out of the barrel of a monopoly. We know this well in Ontario.

    When unions and governments work scratch one another's back, in such a way that competition, transparency, accountability become diminished, society has a problem. And Ontario unions have simply become too powerful.

    As Gwyn says,"Power can only be dealt with by the application of countervailing power" Translated-competition.

  12. Is innovation in Canadians' DNA? A friend has come up with 2 technological inventions. One, a water purifier, he thinks will be impossible to protect by patent. I have seen the product and it is very effective. Another, I won't say what, is in the works.
    There's really a problem with patenting vultures. If he goes ahead an gets investment to manufacture, likely it would be copied in China or elsewhere, and he'd be the loser.

    Another cause of innovation deficit is that our best R&D results can be bought out and taken abroad. Witness what came within a hair of happening with Radarsat. I would be overjoyed if Manley had an idea how to stop this sort of thing, but I doubt it is of interest to him. Easier to continue the sell out of every successful major business in Canada to foreign head offices–where the best paid and creative careers will always gravitate. Manley types see us just as farm team.

  13. …Just eliminate the capital gains tax! You'll get LOTS of innovation and entrepreneurialism…!

  14. Manley reccomended that my 24,000 yearly income should be taxed to keep 5 or 6 million dollar hockey players in Ottawa. As stupid as that is, I have never heard Mr. Manley say anything that approached even that level of intelligence. The less we hear of or from him the better.

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  16. We are not talking about the raw number of company start-ups here or the number that successfully grow and avoid takeovers and bankruptcies. Innovation has little to do with these numbers.

    Business enterprise competition today is being fought out in two distinct arenas:

    1) Companies around the world uniting to compete together regardless of whether they are resource-based, service-oriented or technology intensive.

    2) Distinctiveness in meeting market requirements and needs. For some that means producing and distributing overseas.

    Considering these two areas, every Canadian growth company (I've excluded mom-and-pop's here) has the DNA and an opportunity to compete on the same basis as big business. In fact, many are already doing it and Manley's big business voice has a definite role to play (how can we avoid $3.5 trillion in assets or dismiss $800 billion in revenues?!) Ditto for governments.

  17. There are many examples of countries that have successfully tackled the relationship between governments, institutions and commercial enterprise in order to increase competitiveness and innovation. We can and should have a similar Canadian structure beyond what we've setup with academia.

    I and many others agree (and empirical data shows) that better management drives better business results – this is not new. However, I disagree that an export focus is a worthwhile pursuit in the coming decades since the most competitive and innovative companies are already in global relationships that involve both importing as well as exporting. Exporting is the classic focus of a nation built on a strong resource and manufacturing foundation, not the multi-faceted relationship building needed in today's global business environments.

    If the CCCE does become part and contribute to our global competitiveness, then perhaps the Canadian rally cry will become "partner and listen or perish."

  18. Actually inovation is in most of our genetic makeup. It is just that by the time you have finished dealing with all the bureaucrats and NIMBYs there is no energy left.
    Often exporting technology is not in our best interests either. At one time Canada was the world leader in pulp and paper technology. SO what happened? We exported that knowledge to places where labour is cheap and environmental regs non existent and now we can no longer compete costing thousands of good paying jobs.

  19. what a ridiculous article, canadians are inventive, but they're just not encouraged to be that way.

  20. Let's not confuse innovation with invention. Invention is the art of turning cash into ideas. Canadians are great at that. Innovation is the art of turning ideas into cash. Canadians are not so good at that. Why? Compared to other countries, we have very small markets. It's hard to get the critical mass needed to deliver the benefits of invention to many people. Also, Canadians are very cautious compared to Americans, especially in Silicon Valley. A part of that is from our culture, a part of that is because it is so hard to grow, a part of that is because we don't have the raw wealth to try lots of new ideas and we have to be careful with what we have, and a part of it is because we punish failure. Cautious people don't try too many things, and if you don't try, you cannot succeed.

    However, the very characteristics that diminish our innovation help us build products and services that are long-lasting and very beneficial. Nortel's telephone switches are the best. They are reliable, they have very little downtime, and have been that way for over 25 years. RIM's products and services are not sexy like the iPhone, but they just work reliably, and work really well. I know people who have stopped using their sexy iPhones because they needed something that just did the job well. Canada's banking system is known for being cautious and stable, which are the very characteristics that helped it weather the current recession much better than those of other countries.

    Canadians are great, but just at different things from our neighbours.

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