Shifting Towards Innovation-Based Economic Growth

As the province’s long-running real estate and housing boom comes to a painful but inevitable end, it is important to identify and pursue new and more sustainable sources of future economic growth.

Working to boost productivity is a good place to start.

Productivity is often defined as the economic value of what the economy produces per hour of work by employees. Wages and salaries depend in large part on the productivity performance of businesses. Many factors determine how productive enterprises are, including firm size — output per hour worked generally rises as companies grow — management acumen, workforce skills, and the tools, technologies and equipment available to employees.

The academic and policy literature provides compelling evidence that a stepped-up pace of innovation is the key to increasing productivity. Innovation is not just about expanding the high-technology sector, although that is a worthy goal. It also encompasses the introduction of new ideas and products, the adoption of leading-edge technologies, and the implementation of other value-augmenting changes by companies in every sector of the economy.

B.C. Below Canada’s Innovation Benchmarks

As the B.C. government’s innovation commissioner, Alan Winter, documented in his first progress report, B.C. has a mixed record on innovation. We have been successful in fostering entrepreneurial start-ups and in enabling growth among many early-stage firms. However, B.C. sits well below the Canadian and U.S. benchmarks on some other critical dimensions of innovation, such as:

  • The scaling-up of promising firms
  • Investment in machinery, equipment and digital technologies
  • Research and development activity
  • And the speed with which local businesses take up new technologies

Countering Fears Of Obsolescence

When thinking about productivity, we can’t overlook the widespread fear that the innovative technologies that serve to bolster productivity also kill jobs. However, the historical evidence suggests that economy-wide productivity doesn’t dampen aggregate employment. In Canada, the proportion of the working-age population that is gainfully employed has never been higher, yet our economy is far more technology-intensive today than it was 30 or 50 years ago.

Instead, the automation of tasks and jobs that lift productivity should allow the workforce to be trained to take on more highly-skilled, better-paid positions which, in turn, can help to drive productivity and raise the overall standard of living.

Turning Technology Into The Human Advantage

Some people will be left behind as innovation marches forward. This underscores the need for governments to strengthen support systems for those whose capacity to earn a living is undermined by technology-driven disruptions in the job market.

To succeed and even survive in the future, more B.C. companies will need to incorporate and make effective use of technology in an era of e-commerce, artificial intelligence, robots, the Internet-of-things and the rapidly expanding “digital economy.” Companies in all sectors must ask how the deployment of innovative technologies can allow them to increase efficiency, bring new ideas and products to market faster, and satisfy customer demands.

Retooling Policy To Target Innovation

Smart public policy can assist in moving toward an innovation-based economic growth model in B.C.

One priority is to ensure that our businesses and research organizations have access to the right kinds of talent, not just well-educated entry-level employees (where B.C. does quite well), but also people with substantial expertise in areas like finance, business development, IT, global supply chains and executive leadership.

Policy-makers should also be looking to retool the tax system to make it more effective in stimulating innovation and business growth. This calls for a fresh look at the tax rules governing investments in machinery, equipment, software, digital technologies and other forms of capital that raise productivity. The dramatic increases in statutory income-tax rates that apply as businesses in B.C. (and across Canada) scale-up should also be re-considered. In some ways, the current Canadian business-tax regime inhibits company growth, which makes no economic sense.

Finally, government should recognize that addressing the productivity and innovation imperative is about more than simply growing what B.C. Stats classifies as the “high technology” sector. The companies that fit the government’s definition of high-technology firms account for seven per cent of GDP and employ roughly 110,000 British Columbians. Continuing to expand the advanced technology sector is vital. However, the challenge of improving productivity is economy-wide, encompassing all industries, as well as public sector institutions and services.

 


 

Jock Finlayson is executive vice-president and chief policy officer with the Business Council of BC.

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