Will Ottawa’s ‘cluster’ approach to innovation funding work?

Canada will spend $800 million on a few lanes it can dominate globally. But the question of how they’ll pick the lucky sectors will be tricky politics

Innovation, Science and Economic Development Minister Navdeep Singh Bains responds to a question from the floor during a policy conference in Ottawa, Wednesday October 12, 2016. THE CANADIAN PRESS/Adrian Wyld

Innovation, Science and Economic Development Minister Navdeep Singh Bains responds to a question from the floor during a policy conference in Ottawa, Wednesday October 12, 2016. THE CANADIAN PRESS/Adrian Wyld

Innovation Minister Navdeep Bains set off something of a buzz among business leaders at a conference in Ottawa today by declaring that the Liberal government will choose a very small handful of promising industry “clusters” for special federal support. Speaking at a one-day event called the Canada Growth Summit, put on by the non-partisan Public Policy Forum, he said that in developing its innovation strategy, the government plans to be “very strategic and thoughtful, and identify maybe three to five clusters in Canada that can be global centres of excellence.”

Bains didn’t drop any hints about which sectors or emerging technologies might be the front-runners, but he did note that the government has earmarked $800 million for the “cluster networks strategy.” The idea was soon being discussed informally around the conference, and was later picked up on during a panel featuring several top corporate figures, including GM Canada president Stephen Carlisle. “I really do think we need to pick some lanes, so to speak, to pick some focus areas, some sectors, some technology areas,” Carlisle said. “We can’t afford do it all. We have to pick some spots and specialize and really be excellent at them.”

Not surprisingly, Carlisle touts the automobile sector as an obvious choice. He is a popular figure among federal policy-makers and politicians just now, having announced earlier this year—with Prime Minister Justin Trudeau at his side—that GM would boost its contingent of engineers in Canada to about 1,000 from about 300 over the next few years, giving the auto giant’s Canadian arm a potentially key part to play in its push into developing much more technologically advance cars.

But, then, every industry, and all the regions where they are concentrated, will argue for a place on the short list Bains promises is coming. How will Ottawa choose? Apparently, very carefully. “We have to be thoughtful.  We have to find the niches. We have to find what we can really be good at globally,” he said. Even so, the prospect of any government trying to place winning bets, with taxpayers’ money in a turbulent global economy, is always controversial among economists.

“At a minimum we should be cautious about doing it,” McGill University economist Chris Ragan, a participant at today’s conference, said later in an interview. “It is hardly surprising to me that we have a minister talking about picking niches or picking clusters. Most governments, frankly, end up believing they can do things like that. Most governments fail. That doesn’t mean it can’t succeed and it shouldn’t be tried.”

The notion of fostering industrial clusters, rather than picking individual companies to support, is hardly new. It’s been championed by Harvard University’s Michael Porter for decades, including in his 1991 report for the federal government, Canada at the Crossroads.

The pressure to select certain sectors that typically rely on support from governments—in Canada and abroad—will be intense. On the same panel that GM’s Carlisle participated in, Bombardier president and CEO Alain Bellemare painted a picture of Canada’s aerospace sector up against determined competition from countries that, one way or another, lavish support on the sector.

He wondered aloud if Canada is ready to play in that intensifying game. “What do we want moving forward here in Canada in terms of our aerospace industry?” Bellemare asked. “Is that a core industry? Is it an industry that we want to keep growing in Canada? Or is it an industry that we just want to exit over time? And I’m not just saying this lightly.”

Bombardier is currently in protracted talks with Bains over the troubled aircraft maker’s request for $1 billion in federal funding. Bains has recently signalled that the government “wants to be a partner” with the Montreal company. However, the prospect of Ottawa narrowing its focus on a few clusters worthy of particular support—and facing the inevitable political fallout from the sectors that fail to make the cut—is a different sort of policy question than addressing Bombardier’s immediate problems.

Carlisle framed it as a matter of national will. “The question we have to ask ourselves, and it’s come up at other conferences, is do we have the grit to really go after it? Do we have the sense of urgency?” he asked. “Do we feel a kind of existential threat where we really mobilize quickly enough to take advantage of the opportunity?”


Will Ottawa’s ‘cluster’ approach to innovation funding work?

  1. So we are subsidizing Bombardier because we need jobs, at the same time as we bring in foreign workers because we have… what exactly?

    Our politicians are increasing the number of immigrants and foreign workers to guarantee ‘affordable wages’ for business, NOT to help working Canadians.
    It’s a good time to tell the government what you think. You can email immigration minister John McCallum, employment minister Maryann Mihychuk, and Prime Minister Justin Trudeau, at the below email addresses. Other prominent ministers follow. It would also pay to email your local MP.

    John.McCallum@ parl. gc. ca
    MaryAnn.Mihychuk@ parl. gc. ca
    Justin.Trudeau@ parl. gc. ca

    ralph.goodale@ parl. gc. ca
    Lawrence.MacAulay@ parl. gc. ca
    Stephane.Dion@ parl. gc. ca
    Dominic.LeBlanc@ parl. gc. ca
    Scott.Brison@ parl. gc. ca
    Bill.Morneau@ parl. gc. ca
    Chrystia.Freeland@ parl. gc. ca
    Navdeep.Bains@ parl. gc. ca
    Jody.Wilson-Raybould@ parl. gc. ca
    Jane.Philpott@ parl. gc. ca
    Jean-Yves.Duclos@ parl. gc. ca
    Marc.Garneau@ parl. gc. ca
    Mélanie.Joly@ parl. gc. ca

  2. Corporate welfare — THIS time, it’s different.

  3. This totally looks and sounds like “High Tech Make Work” programs that will spread money around to liberal connected “businesses” in strong liberal areas of the country. No doubt the money will be spread out over 5 – 10 years and the favoured “businesses” will be chasing a cure to the climate change hoax.

  4. Don’t get too excited: a middle of the pack R&D expenditure in the manufacturing sector alone is approximately $5B so 0.8B is not a large number; anything other than some selective allocation and, hopefully, a good deal of leveraging of private investment would be good. Also one should consider that it’s not so easy to turn a big ship and in recent history the bulk of federal government R&D spending has been in the fossil fuel sector. There has been a lot of talk about green energy but the sectored approach under Harper saw $1.6B in clean energy funding being spent on CCS for a single coal fired power plant (which still only works only 40% of the time while not even reducing emissions to that of a natural gas fired plant) which is about 200 times their total funding for wind power research. Denmark is regarded as a world leader in wind energy tech from which it produces over 3% of GDP and 42% of electricity consumed: this provides an example of focused government R&D funding but it should be noted that the USA and Germany have tried something similar with less success, however, Denmark’s success may be attributed to the parallel creation of a domestic market. One weak idea is to spend on R&D for product aimed only at foreign markets. The Canadian government’s indifferent and ineffectual response to foreign attacks on Canada’s nascent solar manufacturing industry also points to a basic problem that R&D investment can only be exploited commercially with adequate government protection. A generic problem with Canadian government R&D funding is a tendency to eschew mainstream product.