Key Challenges and Opportunities
as Ontario Moves Ahead in the New Millennium
As we approach the new millennium, Premier Harris has challenged all of us to think about our economic future.
He is optimistic about the economic future of our communities, our regions and our province in this changing global environment. We have the talent, the resources and the power to decide what kind of future we want. Together we can develop the strategies and the actions to get us there.
To meet the challenges of the global marketplace, and to seize the opportunities before us we need a road map. A road map developed together, beginning with a shared vision of making Ontario the best jurisdiction in North America to live, work and raise a family.
As Ontarians, we need not approach this challenge with fear. We should have a strong sense of confidence and optimism. Our economic and fiscal problems of the recent past are now being addressed and the results are clear. The provincial deficit is coming down. We are on track to balancing our budget by fiscal year 2000-2001. Personal income taxes, which used to be among the highest in North America, are now among the lowest in Canada. Job creation has reached historic levels. Over 370,000 net new private sector jobs have been created since June of 1995.
However, the work to date has not won us the race. We must continue to build a strong and growing economy. We must continue to create more jobs and prosperity. We are in a race that does not have a finish line. Our competitors next door, and around the world, are not standing still. All of the provinces and states around us are continuing to improve their business and investment climate.
If we wish to keep the quality jobs we now have and stimulate new growth and investment in Ontario, we must continue to improve our business climate at both the community and provincial level. We must continue to innovate and to sharpen our competitive edge. In the race for quality jobs and investment, our goal is to get out in front and stay there.
That is why the Premier has asked us to embark on this challenge. As individuals, businesses, communities and organizations from all sectors and regions of our province, we must consider the future. We must plan for the new economy. We must ensure our future growth and prosperity so we can maintain and enhance the quality of life for all Ontarians. It is only through increased jobs and prosperity that we will be able to continue to develop and finance the social programs and quality of life we all expect in our caring and compassionate society.
Ontario is one of the most export-oriented and advanced economies of the world. That is one of our strengths, but it also poses a challenge. We must recognize our need to remain globally competitive across the diverse sectors and regions of our economy. We cannot rely on a low Canadian dollar for our long-term competitive advantage. We must continually strive to improve quality and efficiency. In that way, we will keep the quality jobs that already exist in Ontario and attract new investment to our province.
In the new global environment, we must recognize that our capital - both financial and human - can migrate quickly. The critical challenge Ontario faces is to differentiate itself. That is, to rise above the crowd by creating an environment where good things are happening, where entrepreneurs and business people can grow and succeed, and where people want to live and work.
To help us develop a road map for Ontario's economic future, Premier Harris created the Ontario Jobs and Investment Board. As Chair of the Board, the Premier has asked us to develop an action-oriented economic vision and plan for the next century.
To assist the Board in its work, three special advisory panels have been created. Each panel will explore distinct ways to build an economic vision and plan that will guide us into the new millennium.
The Board asked the panels to consider Ontario's economic strengths and weaknesses, as well as its opportunities and threats, and to seek the input of individuals and organizations across the province.
This discussion paper has been prepared by the Special Advisory Panel on Creating an Innovation Culture to support the Premier's Conferences on Jobs and Prosperity. These conferences will be held in regions across Ontario in the fall of 1998.
Regardless of whether you can attend one of these conferences, the Jobs and Investment Board welcomes your input and advice. Together, we will build an economic plan to prepare Ontario for the new millennium.
On behalf of the Board and our Special Advisory Panels, we look forward to hearing from you.
President and CEO
Ontario Jobs and Investment Board
The Ontario Jobs and Investment Board has asked the Special Advisory Panel on Creating an Innovation Culture to consider the challenges Ontario faces in creating a culture of innovation in Ontario.
The Creating an Innovation Culture in Ontario paper is one of three discussion papers prepared by Special Advisory Panels. The panels were established to provide advice to the Board as it spearheads the development of a long-term economic strategy and vision for Ontario in the new millennium.
The other two discussion papers address:
The Panel members are:
The Special Advisory Panel on
Creating an Innovation Culture
Ontario Jobs and Investment Board
Suite 4340, Whitney Block
99 Wellesley Street West
Toronto ON M7A 1A1
Rapid economic and technological change has defined the 20th century. Global progress has led to some social upheavals but, on the whole, has improved the quality of life for most citizens. Many people expect that the 21st century will witness an even faster pace of change. In Ontario, our key challenge - collectively and individually - is not merely to adapt to change but to anticipate it and take steps ahead of time to make the most of it. Underlying what follows is a belief that by following our current path, Ontario will - at best - maintain its position. In order to improve, it will take change to innovate - to break stride.
This discussion paper is, therefore, about innovation. Innovation can be defined in many ways depending on your perspective - student, entrepreneur, researcher, designer, inventor, artist, teacher, self-employed or employee. But, put simply, it is the ability to both generate and take advantage of new ideas and new ways of doing things. The end result is improved competitive advantage.
It could be argued that our ability to innovate depends largely on two factors:
Innovation can make major contributions to our quality of life.
(Current Prices and Purchase Price
Parity (PPP), US Dollars)
PPP is the exchange rate between two countries that equalizes the purchasing power of two currencies for a similar basket of goods and services in each country.
In the 19th century Great Britain was arguably the most innovative society in the world. It was also the wealthiest and its currency the strongest. The same could be said of the United States today. Canada and other nations are meeting with various levels of success as they try to catch up.
Chart 1 shows Gross Domestic Product Per Capita in the seven leading industrialized countries. GDP, a standard measure of economic strength, refers to a country's total output of goods and services. Notice that the United States (U.S.) is well ahead, and that the gap is growing between it and the other G-7 countries. Canada consistently held onto second place from the mid-1970's to the beginning of the 1990's but Canada, like the other nations, is falling more and more behind the U.S.
Most new jobs depend on innovation
Chart 2 indicates that although high-tech, knowledge-intensive industries account for 39% of overall employment in Ontario, they generate more than two-thirds of new jobs in the province.
Innovation is a renewable source of wealth.
Innovation can lead to huge improvements in countless forms of human activity, such as:
The status quo is not a viable option
Maintaining the status quo or convention merely sustains the position of Ontario, at best.
Ontarians should be working harder to achieve new and distinct advantages
over our economic competitors. This requires strength and leadership, and
involves risk. But the rewards can be considerable. This document is a
call to action.
As we indicated earlier, innovation is about ideas. Ideas and processes only advance change where the culture of that society accepts the change. It is about a willingness to look ahead and think about longer-term opportunities and threats.
For the purposes of this discussion, innovation can be seen in even broader terms. Innovation:
Human thought and ingenuity affects every sphere of life. Innovation influences, for example:
Innovation runs across all economic sectors, and affects communities of all sizes. Traditional sectors such as agriculture, mining and forestry are hugely innovative. Service businesses and sectors such as financial institutions and the entertainment industry are increasingly large investors in innovative approaches to meeting customer needs.
Innovation in political institutions has been fundamental to the growth
of Western democracies. For example, innovation has spilled over into ways
governments offer education, policing and consumer protection through regulations.
Innovation means generating and adapting to change
First one invents, then one innovates. One may invent or discover a new product or a new way of doing things. But, from a social perspective, innovation occurs only when this new product or process becomes widely used.
In the commercial world, the innovative product or process becomes successful when consumers use it widely such as the cell phone. Consider another example taken from the world of track and field. In the high jump, a new, back-first technique known as the "Fosbury flop" became widely imitated and led to new world records.
Innovation by its very nature involves improvements over traditional products or techniques. Sooner or later, these improvements come to be widely appreciated. Personal computers, now a frequent home and office feature, have existed since the early 1980's.
Innovations not only create new products, processes and institutions, but also destroy the status quo. The very role of innovation is to change or replace traditional ways of doing things. That is why innovation tends to face certain barriers, such as:
To innovate, one must step beyond what is known and accepted by society. That is why it involves risks.
However, unsuccessful efforts to innovate can be costly. A modern corporation can lose millions of dollars if it fails after trying to pioneer a new product. Also at stake are the possible losses of face, friends, reputation and future opportunity.
Innovation involves collaboration.
Innovation is typically made possible by entrepreneurs who build teams
with experts in areas such as invention, technique, business and finance.
There are countless examples of successful entrepreneurs who use their
resources and commercial abilities to team up with "smaller players" with
What are the incentives to innovate?
What obstacles stand in the way of achieving a culture of innovation?
An Innovation System
Innovation depends on:
In the world of innovation, culture comes down to shared attitudes, values and beliefs. It determines how well we encourage creativity, risk-taking, entrepreneurship, and networks to share knowledge and ideas.
Culture is reflected in our behaviour, such as how we set and pursue priorities. Culture also refers to how we organize ourselves and relate to other organizations. Culture exists at many levels - corporate or service organization, sector, community, region, province or country.
Creating an innovation culture is a long-term and dynamic process. How do we shape and change the ways of thinking and interacting of our youth - our future innovators?
How do we respect, build, encourage, support and reward innovation?
By world standards, Ontarians are well educated. Ontario has a higher rate of post-secondary educational achievement than any country in the Organization for Economic Cooperation and Development (OECD).
In 1997, 46% of Ontario adults aged 25 years and over had completed post-secondary education.
Skilled labour is the biggest reason why foreign-controlled multinationals (FCMNs) perform R&D in Canada, according to a survey conducted for a 1996 report on Canada's R&D position. In addition, many FCMN parent firms have internal studies demonstrating that the cost to perform R&D in Canada is between 20% and 40% less than in areas in the United States. The cost advantage comes from lower salary costs, the Canada-US exchange rate and a variety of direct and indirect government support programs including, for example, generous R&D tax incentives.
Despite these advantages, there are concerns. Slower labour force growth and an aging workforce means that we will have to meet new needs for skilled labour by retraining current workers. The Special Advisory Panel on Preparing People for Tomorrow's Jobs raises the implications of these trends in its companion discussion paper. These trends will affect training, re-training and adjustment policies in the private and public sector.
The Preparing People for Tomorrow's Jobs Panel, also considers the implications for a growing number of self-employed people. If the movement towards self-employment turns out to be a long-term trend, it could affect the intensity of innovation by individuals and organizations.
Organizational and Physical Infrastructure
Do we have the right infrastructure in and among our schools, universities, colleges, laboratories, firms and communities?
Are they well linked through relationships, partnerships, alliances and networks?
What can we do to help Ontario companies outperform their competitors?
How can Ontario's innovators connect better with venture capitalists, management and marketing consultants, business associations and research universities?
Ontario has many major research organizations
and universities and colleges, including some of the best in the world.
Among 46 institutions, there are:
Successful countries generally invest more in
research and development than others do.
According to the Organization for Economic Cooperation and Development:
Within Canada, Ontario leads the way in the use of new technology. Ontario manufacturers tend to adopt technology and use it in more complex ways than their counterparts in other provinces.
Ontario has become a hot spot for thousands of relatively small but fast-growing, innovative firms that could become tomorrow's corporate giants. These so-called Innovative Growth Firms create valuable jobs and keep Ontario on the cutting edge of new technologies. And they:
Too few of Ontario's promising innovative companies manage to make the transition to medium size and then go on to become large, global players. Compared to American competitors such as California, Ohio, Michigan, Pennsylvania and Massachusetts, Ontario has a smaller share of firms in the mid-size (100-499 employees) and large size (500 plus) categories.
Legal and Financial Infrastructure
What improvements do we need to make to access to financing and our system for protecting intellectual property to encourage and support innovation?
The ways that we reward risk affect our capacity to innovate. For example, knowledge is a unique type of commodity, what economists would call a pure public good. Any number of others can easily acquire and reuse the ideas. As a result, the creators may not get a full pay-off from their original creation. This can discourage new investments and new products. To ward off this problem, inventors and entrepreneurs can apply for patents and trademarks to protect their products from imitation.
However, giving a company the sole right to produce a specific good can also inhibit the benefits to society gained from open and widespread access to knowledge. That is why patents, for example, are temporary.
Our international and national system of protecting intellectual property remains far from perfect, and has sparked frequent debate. "Innovations" related to our intellectual property laws and legal system need to keep pace with changes throughout the economy.
Access to financial capital is key to innovation. The tax system, also, can have a positive impact. Ontario's tax incentives for R&D are among the most generous in the world. However, our R&D tax credits are largely directed at only one part of the innovation process. They may not provide incentives for many other innovative activities that can generate wealth.
Small business groups have recommended various ways to improve access to capital and encourage innovation:
Community and Social Capital
1) Communities, Networks and Risk Reduction
Where in Ontario are innovative attitudes and values apparent? What can we learn from them?
Industries tend to cluster in certain geographic locations. Clustering helps companies reduce risks by creating communities of workers and suppliers that meet their needs.
When it comes to financing ideas, lenders tend to be hesitant because they have few hard assets to seize in case of a business failure. Clustered economic activity allows people and organizations to develop track records that become well known to others in the community. These track records are critical to one's ability to attract the financing necessary to develop new intellectual properties. Clustering can also give employees, as well as those who are self-employed or entrepreneurs, some security in their job or work choices; for example, the option to move to another company or employer is enhanced when you have developed a track record within that cluster of companies. Good track records help entrepreneurs and innovators overcome these barriers.
The concentration of business activity in a certain geographic area attracts new competitors and suppliers. Ottawa's Silicon Valley North is populated with firms tracing their heritage back to Bell Northern Research and Computing Devices, just as a new generation of companies have spun out from Newbridge Networks. Another example includes a cluster of digital media companies that have located or spun out of the Toronto area (Kitchener/Waterloo and Ottawa also have pockets of digital media activity). The estimated 400 interactive digital media companies operating in the province already employ about 8,000 people and have significant potential for growth.
Communities, both large and small, can take advantage of sound economic environments at the provincial and national level to shape their own economic destinies. Community development is a bottom-up process, which requires that individuals and organizations come together to focus on the future and to provide the leadership needed to chart a road map for the future.
Successful communities assess their strengths and weaknesses, make the most of opportunities, and confront challenges. They identify the actions and capabilities required to meet their job creation and development potential.
Much attention has gone to communities that have bred manufacturing and high-tech clusters. But communities can also excel at their own forms of innovative economic development.
2) Innovation and the Renaissance Community
How can cooperation and collaboration within and among organizations be encouraged and strengthened to create an innovation "infrastructure"?
Innovation works best when people with different knowledge, skills and perspectives are brought together to tackle challenges. These "renaissance" teams can be created within organizations, firms and in geographic communities.
Highly functional networks in communities also benefit from the interaction of various skills. For example, bringing a new invention to market requires:
Of course, the importance of networks in the geographically based community extends beyond individuals to organizations, both public and private. For example, it is well-documented that "innovative communities" foster close ties between universities, colleges and private sector research organizations
Similarly, private companies sometimes develop collaborative linkages or networks.
1) Necessity Is the Mother of Invention: Cultures Are Products of the Environment
How do we create an environment at the firm, organization and community levels that rewards those who take risks and those who look for new and more effective ways of doing things?
Innovation results from thought followed by action.
It depends in part on the personal abilities of the leading innovator. But innovation is also affected by the environment - where we live and work.
Culture reinforces the behavior and strategies we require to succeed in any given environment. But environment dictates culture, too. If we live in a business environment that favours innovation, then such behaviour will become prevalent. There is an old saying, which goes: "Necessity is the mother of invention." The more demanding the environment in certain respects, the more likely the organization or individual is to respond innovatively.
Examples abound in Ontario and Canada. The difficulties associated with finding, extracting, processing and transporting Ontario's natural resources spurred high levels of invention in the resource sector. As the following examples show, there is evidence that tough environmental regulations can stimulate innovative solutions.
Competition creates a demanding environment. Knowledgeable customers armed with a choice of suppliers tend to force companies to innovate. Each competitive environment tends to foster its own type of innovation culture. For example, one would expect to find different corporate cultures in moving from a logging company to a software firm.
By contrast, companies that enjoy monopolies - the right to be the sole supplier of a given good or service - have few built-in incentives to innovate. Recognition
of this fact has led to ending certain monopolies, which in turn has
resulted in increases in productivity, performance and improvements in
service to customers.
2) Cultures Are Deeply Embedded In the Social Infrastructure
Can we create a culture in Ontario that views innovation, entrepreneurship and risk-taking with the same spirit, curiosity and enthusiasm found in our hockey system?
Canadian hockey is an example of how various elements of a system come together for our collective benefit. It is highly unlikely that any given child will make it to the National Hockey League (NHL). And many risks are involved in making the effort. Nevertheless, millions of Canadians - children and parents - buy into the dream of a professional hockey career. Why?
Our hockey system mirrors many of the requirements of innovation:
How will we know that Ontario is getting better at creating a culture of innovation?
What are the current indicators for measuring our performance and activities? Are they the right indicators?
What is the role of government in helping to build an innovation culture and economic environment? How can the different levels of government work better together to stimulate innovation?
What can we learn from other jurisdictions?
Ontario accounts for 41% of Canada's gross domestic product. It is Canada's industrial heartland, and its most diversified economy. Ontario is a major trading jurisdiction, and depends heavily on international trade and investment.
The Ontario Government has focused on the quality of our business environment by taking various steps:
Ontarians still face many economic challenges.
The global economy continues to become an ever more competitive and demanding environment. Trade liberalization increases the number of global competitors for products and the number of countries competing for foreign direct investment. The increasingly competitive international market for scientists, engineers and
computer animators, just to name a few examples, is giving rise to concerns about the "brain drain" and its long-term consequences. In some sectors, investment tends to follow top scientists and researchers or skilled workers - which makes it harder for us to attract and keep them.
Worldwide, consumer expectations are increasing, as they demand more sophisticated and customized products and services. New technologies are shortening product life cycles and forcing companies to respond faster. Companies must have the capacity to quickly apply new technologies. Companies will also be challenged to keep abreast of market trends and leading-edge technologies around the world.
Others Aren't Standing Still
Ontario is not alone in trying to figure out how to encourage and reward innovation. Many other jurisdictions have identified innovation as the key to competitiveness and are attempting to improve their innovative capacity. In the 21st century, the ability to innovate will separate the economic leaders from the rest of the pack. Advanced world economies know this and are seeking ways to use knowledge to create competitive advantages and a platform for further job creation and investment.
Where Do We Go From Here?
In this increasingly open and competitive international environment,
the ability to take advantage of opportunities and adapt to change is becoming
even more important in creating the valued-added, knowledge based economic
activities we need to compete in the new millennium. Our ability to raise
our living standards depends on improved productivity and our ability to
maximize innovation throughout the economy in our organizations, communities,
companies and governments.
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