Building Canada’s digital, low-carbon economy

In the early days of the COVID-19 pandemic, shortages of critical medical supplies and personal protective equipment (PPE) were commonplace. At Canada’s Ministry of Innovation, Science, and Economic Development (ISED), staff quickly realized they could use the relationships with the business sector they had built over time, in industries such as aerospace, manufacturing, and automotive, to help solve this problem. Initiatives and incentives were pulled together, and soon textile manufacturers that normally made snow jackets were mass-producing medical gowns.

The ISED ministry’s leader, Simon Kennedy, was well positioned to orchestrate this pivot. During his three decades in public service, Kennedy has provided policymaking guidance to the central government; served as the prime minister’s personal representative at the G20; and, for nearly five years, led Health Canada, where he managed the government’s response to the opioid crisis. In September 2019, only a few months before the pandemic took hold, he transitioned to his current role. Besides boosting Canada’s PPE production, Kennedy’s ministry has supported businesses under extreme stress and accelerated a program to roll out broadband access amid an unprecedented surge in demand.

Kennedy and his team are also looking to the future, leading initiatives that will fuel Canada’s recovery by building an inclusive digital economy and embracing decarbonization. It is a vision that will be enabled by bold innovation. As Kennedy explained to strategy+business in a recent video interview, government can play an active role in creating the environment and facilitating the collaboration needed for innovation to flourish.

S+B: What are some of the critical challenges for Canada’s post-pandemic recovery?

KENNEDY: The immediate focus of the government and of my ministry has been to protect people’s health and safety. At the end of the day, good economic policy is also good health policy. There’s no sense in advancing an ambitious recovery strategy only to have a third wave or to not have the pandemic under control.

A related and critical concern is to support the business sector and workers. This crisis has affected all sectors of the economy, but some have been hit harder than others, such as tourism, hospitality, and air transport and aerospace. Small businesses’ needs have diverged from those of large firms. Canada’s a big country, and our regional economies have been affected differently. One of the things that we have been trying to do over the last nine months is to make sure that, to the extent possible, the economic effects of the pandemic are blunted and the risk of permanent scarring is reduced — so that when the pandemic starts to recede, we can come roaring back as quickly as possible.

In the medium term, and as we look to the future, many of the challenges we faced pre-pandemic are the same kind of challenges we’re going to face post-pandemic. And in some ways, the pandemic has really put a red line under them — it has highlighted these challenges as being even more important to address than perhaps we had thought previously.

For example, we were facing the challenges of climate change pre-pandemic. That hasn’t gone away, and, in fact, the pandemic has illuminated for many how Mother Nature can throw a disruptive curve ball at society and how important it is to deal with systemic risks. The emergence of the digital economy was also a major priority prior to the pandemic. Well before it hit, the government announced a digital charter of 10 principles that would guide its development of new rules for the digital economy. And as we’ve seen during the pandemic with remote work and businesses moving online, this charter is just as important today, if not more important.

S+B: What is the role of your department in confronting these challenges?

KENNEDY: My organization plays an important role in bringing to bear all the various tools we have to support a dynamic and innovative economy. We do that in support of four ministers with wide-ranging mandates, such as innovation, tourism, small business, and rural economic development. And of course, we are one department working with a larger federal team.

I am a civil servant — I don’t run a private business — and the government’s job is not to substitute for the role of the business sector. But my organization is responsible for setting the rules of the game. From the formation of a business to the dissolution of a business and everything in between, we’re responsible for the related laws and policies, such as for firm incorporation and for bankruptcy and insolvency.

We also deliver major programming, and we support research. If you think of the laws, regulations, and programming for the business sector in this country as a public policy value chain, we’re active along all parts of that value chain. And our goal is to make sure that we don’t have weak links — that the various interventions we’re making are mutually reinforcing, for the benefit of a strong business sector and economy.

S+B: What is an example of an intervention the government has made to support a more innovative economy?

KENNEDY: Government can be a convener and a facilitator. For example, there’s a lot of research on how innovation clusters form and why they work. In a cluster, you’re in an environment in which it’s more likely that the collisions will happen that enable you to take your idea from concept all the way to a functional business. Moreover, when clusters get going, they become magnets that attract others.

The government’s Supercluster program aims to help foster that kind of environment, in high-potential sectors that may currently lack scale or that are missing ingredients, and where state support can help take it over the top. The program brings together different actors that may not necessarily run into one another and incentivizes collaboration and collective action — facilitating those collisions and that dynamism.

These programs are business-led; they are self-governed by an industry board. The typical Supercluster has a number of anchor firms, but also startups and small and medium-sized enterprises, as well as academic, not-for-profit, and government members.

S+B: Can you give an example?

KENNEDY: Canada has an enormous agriculture sector and is a world leader in the production of plant protein. And there is exciting innovation going on in the plant protein sector: All you have to do is go into your local specialty grocery store and look at many of the foods on the shelf.

The Protein Industries Supercluster brings together the farm sector and the processors, but also the technologists and the innovators. Take canola, for example. That crop was invented in Canada in the 1970s and for decades has been one of our most important agricultural exports. But most of the processing and value-added activity was being done abroad. One of our most famous agricultural innovations wasn’t being used to its fullest potential in Canada. The Supercluster is changing that, catalyzing partnerships to develop new breeds of high-protein canola and roll out innovative technologies to transfer the crop into new food and feed products.

S+B: What have been the results of the Supercluster program so far?

KENNEDY: It’s a new way of working, and it brings people together who you would not necessarily think would be actively collaborating, so it took a bit of time to get off the ground. Participants have had to figure out who to partner with, and then how to partner with one another. But it’s taken off, and early results suggest the program is getting traction.

Under the original business plan, what we had envisioned was a one-to-one match. The idea was that government puts a dollar in, and industry puts a dollar in. The results were better than we had hoped for. The Superclusters have approved hundreds of projects worth more than CAD$1 billion [US$793 million], with industry exceeding its expected financial match. The program is now closing in on alliances involving something like 900 partners, and more than half of them are small and medium-sized businesses.

S+B: How else do you work with companies to support innovation, for example, by providing direct investment?

KENNEDY: There are areas where it may not, for good business reasons, be rational for a business to make an investment — even when there might be an important public payoff. Or areas where in the end the societal gain, and frankly, maybe even the gain to the business, might justify the investment — but the risk or the uncertainty makes it difficult. In situations like these, government can partner directly with the business sector to cost share or to share in the risk.

For example, my team runs a program called the Strategic Innovation Fund, which is a large-scale fund that supports innovative technology development and new businesses. One of the areas of focus is decarbonization and green technology. We all know that at a macro level, clean tech is a promising sector with growing demand. As a society, we have an interest in the emergence and deployment of clean technologies and the achievement of net-zero emissions.

But some clean technologies — such as new ways to capture and use carbon — are high-risk investments, and the payoff might be longer term. In late 2020, the government announced CAD$3 billion [US$2.4 billion] in new funding, to be delivered through the Strategic Innovation Fund, focused on carbon reduction and supporting industries in achieving net zero.

S+B: How have some of these funds been used?

KENNEDY: Last fall, the government announced, with Ford Motor Company, a significant investment to transform Ford’s Oakville, Ontario, automotive manufacturing assembly facility to manufacture electric vehicles. This involved a CAD$295 million [US$234 million] investment from the Strategic Innovation Fund into the CAD$1.8 billion [US$1.4 billion] project. There are significant opportunities for the government to work with the other vehicle assemblers over time to transition to zero-emission vehicles and to low-emission technologies.

The government is also looking at supporting battery production. Canada has all the ingredients necessary for the electric vehicle battery supply chain: the minerals, the expertise in manufacturing, and so on. And it has the industry demand, such as automotive, heavy vehicles, and buses, that could be a market for those batteries.

S+B: What kind of impact can these types of programs have on traditional resource industries?

KENNEDY: Canada’s resource sectors — energy, mining, forestry, and so on — are important components of our economy; they are a significant share of our exports, our employment, and our country’s natural endowment. The government’s objective is to support these industries in remaining competitive and sustainable. In fact, many resource companies have already announced their intention to go to net zero. And increasingly, the international investment community is demanding this of industries as a condition of investment.

I think sometimes people tend to talk about these things in opposition: that there’s a modern economy, and then there’s this other economy. But when we talk about our commitment to innovation, it’s an equal-opportunity commitment, not future industries versus so-called traditional industries. Innovation is about the economy writ large — and supporting the Canadian economy in its low-carbon evolution.

Now, the resource sector arguably has been a bigger focus in the media and in public debate around things like carbon reduction. But all industries are going to have to reduce their carbon output. Investors expect it. Citizens expect it. Governments expect it.

We also have to look at all industries as digital and in need of transformation. For example, it’s striking to see the changing composition of the stock market in terms of tangibles versus intangibles. In 1975, only 17 percent of the total market cap of the S&P 500 was made up of intangible assets. Today, it is something like 90 percent that is comprised of intangible assets. Most of the value is in the ideas. Are you better able to understand the customer and serve their needs? Can you move faster than the others? Can you take advantage of the resources that you have more efficiently? And a lot of that depends on data and technology.

S+B: How is Canada’s government regulating companies as part of its digital transformation, for example, to protect data and privacy?

KENNEDY: Part of building an innovative digital economy is making sure that you have modern legal frameworks and laws that are fit for purpose for a modern economy. The rules of the road matter; you could have great programming, but without the right rules, business activity can be stifled. People need to trust the platforms they’re using. They need to trust that their data is going to be used appropriately, that their privacy’s going to be respected, and that people who violate the rules will be dealt with appropriately.

Legislation currently making its way through the House of Commons is designed to be a significant overhaul of the rules around digital and data. It will modernize the rules around consent and facilitate data portability. Right now, the lack of data portability arguably impedes the emergence of certain business models. If you have a better mousetrap, but your mousetrap relies on the data that the customer’s been collecting with another company, it’s pretty hard right now for that customer to say, “I want to migrate my personal data to the new company, because it has a better service offering.”

S+B: How is the government promoting digital adoption and digital inclusion more broadly?

KENNEDY: We’ve seen just how important it is both for the functioning of the economy and for social interaction to have access to broadband internet. We all know there’s been a rush to digital adoption, but pre-pandemic we were still lagging our competitors in this space. The statistics show that Canadian small and medium-sized enterprises generally have been slower to adopt digital technologies than, say, their American counterparts.

Still, in March of 2020, 4.7 million Canadians shifted to work from home, and hundreds of thousands of businesses quickly adapted their service offering to go online. My department works with the telecommunications companies and with the internet service providers; we regulate those organizations, and we partner with them on the expansion of broadband. They were working like mad to increase the capacity of their networks and to handle the additional demands. In my own ministry, which has prided itself on being the ministry that’s responsible for connectedness and that embraces technology, we decided last spring we needed to aim for a roughly fourfold increase in our broadband capacity, if we were to continue providing a full service offering effectively. And we are looking at further upgrades over time.

When you talk about digital inclusion, though, too many households in our country still lack access to high-speed broadband. Pre-pandemic, the federal government announced significant investments in this area. But the pandemic has underlined the importance of bridging the digital divide. Not every Canadian was affected equally; the pandemic has disproportionately affected minority communities, indigenous peoples, and women. In general, we have groups in society that are not included, and although we have made good progress on connectivity, we still have a way to go.

The government announced a new universal broadband fund in late 2020, with CAD$1.75 billion [US$1.39 billion] in additional investment. That’s a 75 percent increase from its original plan. The government’s total investment in broadband in the past five years or so is now approaching about 10 times the total investment in this area historically. The formal objective is to connect 98 percent of all Canadians to high-speed broadband internet by 2026, and every Canadian by 2030.

S+B: Beyond the need to accelerate digital adoption, what did the pandemic reveal about Canada’s resilience?

KENNEDY: There are areas such as bio manufacturing where we didn’t have as much capacity and resiliency as we’d want. We have a number of big companies in Canada that make vaccines and therapies, but we did not have the surplus capacity to make vaccines for COVID-19 at scale. The existing manufacturing capacity is largely dedicated to other priorities, such as pandemic influenza, diphtheria, polio, tetanus, and so on. Rebuilding our bio manufacturing capacity is a top priority for my ministry and the government.

We’ve also seen how the pandemic has widened disparities in our society, and that has led to increased government support for Black and women entrepreneurs. We are also working to drive greater diversity on boards and management teams. I’d include my own organization in this effort — we have some way to go before we can claim to be a truly diverse department. But that’s where we need to go. The research is clear that diverse organizations are more effective and resilient.

We need to be thinking about what the concept of resiliency might mean for the future, and whether some areas need to be recalibrated, as we are doing with bio manufacturing. Because at the end of the day, you want an efficient and well-functioning economy, but you want to be resilient to shocks, too.

That said, I think that there were many ways in which Canada was resilient. We have many strengths as a country: We have a significant resource endowment, a strong industrial base, a well-functioning public administration, and a population that pulls together in a crisis. I think we were lucky that we had a business sector that had certain core competencies, as well as manufacturing capacity, that enabled us to adapt relatively quickly. And I think we were also lucky to have some expertise in the public sector to be able to identify where the opportunities were, and to work with industry to get things done.

For example, at the outset of the pandemic, we sourced almost all our personal protective equipment from abroad. Now, by dollar value, almost half of all PPE is made in Canada. We had textile manufacturers who normally make underwear and ski jackets who transitioned to making medical gowns. Firms that normally make flight simulators or automobile parts were making ventilators. Distilleries were pumping out hand sanitizer. This represented a significant pivot of some of our industrial capacity. And it was only in an emergency that Canadians realized we could do it.