Andy Holloway  Oct 4, 2011 – 6:35 AM ET

Canada isn’t known for being a nation of entrepreneurial risk-takers despite years of government hand-wringing, yet we still have one of the world’s best developed economies. Should we care we’re not as productive as we could be?

Country rankings are no friend to Canada when it comes to rating our prospects for prosperity. Just last month the World Economic Forum reported Canada is no longer a Top 10 country when it comes to competitiveness, falling to No. 12 in its 2011-2012 ranking behind Hong Kong — somewhat understandable given the rise of China — and the United Kingdom, a debt- and riot-ridden nation saddled with one of the world’s most pessimistic populations. In June, the Science, Technology and Innovation Council reported Canada ranked worse or stagnated in 18 of 24 innovation performance benchmarks since its 2008 report. That same month the Conference Board of Canada pegged this country’s capacity to innovate as 14th best of 17 countries and gave it a resounding D.

The list of things that are wrong seems astounding and all-encompassing: Canada spends less per capita on research and development than many other countries, business and government R&D is down, venture capital relative to GDP is dropping, trade tariffs and barriers remain high, foreign-direct investment rules are hindrances, wasteful spending is rampant. Even our high-school students don’t escape criticism, with the Science, Technology and Innovation Council indicating their test scores are typically lower than their peers in other countries.

Yet Canada has one of the strongest economies in the developed world, certainly the G8. Compared to the United States and many countries in the European Union, Canada holds more than its own. The economy will still grow by 2% in 2012 and the jobless rate should drop to 7-7.5%, projected TD Economics in August, and the federal government debt is still comparatively under control. Things are going so well that other countries point to our economic success and fiscal restraint as a model to envy, to emulate, indeed, to celebrate. To hell with those rankings that picture Canada as a risk-averse nation of brain-dead caretakers of its abundant natural resources, right?

It’s a tempting knee-jerk response, but not entirely rational. The commodity boom we’re enjoying will end someday, certainly before we run out of the precious materials we hold so dear. Even if the boom doesn’t end soon, the long-term trend for commodity prices is down so the current rise is not sustainable. But there’s a much more base reason to decry Canada’s lack of productivity, entrepreneurship and innovation. “Firms that are less productive and less innovative pay lower wages,” says James Milway, executive director of Ontario’s Institute for Competitiveness & Prosperity.

But if we accept that there is a problem — and Canada’s appalling productivity level suggests we should — then someone has to take the blame for it, or at least step up and right the wrongs. And that’s where things get murky. The federal government over the years has done its part: It lowered tax rates, increased R&D incentives, balanced the budget — at least for a few years — and created a strong business climate. Sure, there are some more initiatives it could take, as Bill Currie, Deloitte Canada’s vice-chair and leader of the banking practice, points out. Namely, reduce the morass of red tape and the number of programs that aren’t well-defined or publicized, sign more trade deals with larger nations (Costa Rica is nice to visit, but it’s no economic power) and provide better support for early-stage financing.

But businesses still need to take advantage of those initiatives and programs, something they have been apparently reluctant to do. Deloitte in June released a survey that proved what many always suspected: Canadian executives are not as likely to take risks as their American counterparts. Deloitte even quantified this gap, reporting that Canadians were 18% less likely to take risks than Americans. But the gap isn’t across the board. Canadian execs who self-identified themselves as risk-takers were no different in their actions than similar Americans, but risk-averse Canadian execs were far less likely to take a chance then the Americans who identified themselves as risk-averse. “They were less likely to spend on machinery and equipment, less likely to spend on R&D, more likely to want government support to make investments and behaved in a materially less risk appetite than the other side,” Currie says.

But Milway isn’t convinced that Canadians are wired any differently than Americans. Instead, he suspects the real reason is that there are too many Canadian industries that are protected from competition. The telecommunications, financial services, transportation and media industries, among others, all have foreign ownership rules and other regulations designed to keep Canadians buying Canadian company services.
Even the beer industry is protected by regulations that prevent small breweries from selling their products across the country without hassle.
“We still make it too comfortable for a lot of our businesses and executives to not worry about competition, not worry about somebody down the street or around the world trying to put them out of business,” Milway says. “We have an environment in Canada that allows the non-risk taker to stay alive.”

Taking risks, though, is exactly what’s on the mind of a group of young adults hanging out in the backyard of W.Galen Weston’s tony Toronto house on a balmy mid-July evening. It’s likely been quite awhile since this many young people have gathered at Weston’s house, but while they are here to have a bit of fun, perhaps a drink or two, they’re also here on business — entrepreneurial business. Weston is one of three founding patrons — the other two are Jimmy Pattison and Paul Desmarais Jr. — of the Next 36, a year-old entrepreneur bootcamp run by the University of Toronto that puts 36 students through a rigorous eight-month crash course on the ins and outs of starting and running a business. The program also gives them mentors and $50,000 in capital to create a mobile-application business.

Choosing and focusing on only a select group of students from the 1,300 who applied for the program is, admits program co-founder Reza Satchu, “not the most Canadian thing to do,” but then not everybody has what it takes to succeed in business. “When they’re ready, they will do it. They will have the education, the confidence and the relationships to succeed.” Satchu may be right. At the very least, these students have ambition and chutzpah to spare. Two of them want to be prime minister. One publicly used Loblaws as a case example for her customer complaint and feedback app, while Weston and his son, Galen G., the executive chairman of Loblaw Companies Ltd., looked on.

The budding entrepreneurs have no problems talking to the media or approaching any of the corporate heavy hitters in the audience — some of whom such as Globalive Communications Corp. founder Anthony Lacavera and Rogers Communications Inc.’s CEO Nadir Mohamed are involved in the Next 36 program. And, although it’s doubtful anyone took up Weston’s suggestion to actually ask Pattison to show the two old cheques he’s brought from B.C. — mementos of times when his business was on its last legs — it’s safe to say these students are not the timid bunch of Canadians the rest of the world seems to think we are. As Emily Dimytosh, a Next 36 student and founder of sustainability consulting firm Practically Green Solutions, puts it: “We’re armed and we’re dangerous.”

If there’s any hope for Canada’s future performance — on rankings or otherwise — it’s here. But the past hasn’t been all bad, says Av Utukuri, CEO of Toronto-based innovation consultant Nytric Ltd. “We would argue that innovation is alive and well in Canada,” Utukuri says. He points out that by some rankings Canada is doing just fine.

For instance, Canada is a respectable eighth and climbing in innovation, according to a ranking by international business school Insead, slightly behind the U.S. But he argues the ranking — any ranking for that matter — doesn’t tell the whole story. For one thing, many of the countries often perceived to be ahead of Canada are highly specialized in a particular sector. Switzerland has a focus on pharmaceuticals; Japan tends to focus on efficient manufacturing and new product development. Other “innovative” powerhouses, such as Ireland, Singapore and Hong Kong, are known for enticing foreign companies with incentives.

“When one looks closely at Ireland, it appears that much of the country’s innovation seems to have come from foreign companies lured to set up there by generous government subsidies,” Utukuri says. “Are they Irish innovations? Or did they simply occur in Ireland as a result of corporate developments started elsewhere and then transferred to Ireland for the subsidy?”

Historically, Utukuri says, Canada has been recognized for its ability to innovate. Indeed, many significant Canadian inventions — the light bulb, TV camera, insulin, walkie-talkie, alkaline battery and telephone to name but a few — have all had, and still have, long-lasting effects on everyone’s daily lives. But in some cases, the credit goes to another country. For example, the light bulb was developed and tested in Montreal by Henry Woodward and Mathew Evans, who then sold the idea to Thomas Edison. A Canadian idea perfected by an American, a common though frustrating occurrence.

“What is lacking in Canada is a willingness by private funders to invest in innovation, which causes many great Canadian ideas to end up being developed elsewhere — Ireland perhaps,” Utukuri says. “Probably the worst thing about Canadian innovation is our poor record at marketing it, but we certainly have no reason to be ashamed of our record or our ability to produce innovation.”
That may be true, but as Next 36 and University of Toronto student Saksham Uppal points out: “An idea without execution is just an idea.” It’s time Canada did more than just think.

Posted in: Financial Post Magazine Tags: European Union, Globalive Communications Inc., Innovation Council, Institute for Competitiveness, Loblaw Companies Ltd., Rogers Communications Inc., TD Bank Financial Group, The Conference Board, W. Galen Weston, World Economic Forum