Innovation Inclusive Economic Growth Articlev2

The Anxiety and Hope of Innovation-Driven Economic Growth

By Sean Mullin
March 22, 2016

Today, Federal Finance Minister Bill Morneau will deliver a budget that is widely expected to focus on harnessing innovation to drive new levels of economic growth for Canada.

Interestingly, a little less than two weeks ago, Families, Children and Social Development Minister Jean-Yves Duclos took a step that was a departure from the usual lead up to the Budget. He provided an update on the opportunities and challenges facing Canada’s middle class.

The connection between these two events is a familiar story: Jobs and Growth. For decades, Canadians have been comforted knowing that if you have growth, jobs will follow. That simply by growing the economy, new jobs will be created, largely benefiting the middle class.

However, recent evidence shows that this link, if not broken, is becoming increasingly tenuous. Many are asking: if this new economy has such promise, where are the jobs?

It’s a question that has tremendous implications for our time. The Brookings Institution showed that in 1980, it took 25 jobs to generate $1 million in manufacturing output. In 2015, you could reach that level of output with just 6.5 jobs. Martin Ford, in his book The Rise of the Robots, cited some numbers that seem to define two very different economic eras. In 1979, General Motors needed 840,000 workers to earn $11 billion in today’s dollars. In 2012, Google, a current icon of corporate success, generated a profit of nearly $14 billion while employing fewer than 38,000 people.

In Canada, the Brookfield Institute for Innovation + Entrepreneurship (BII+E) released two studies last year which illustrate the tension in the economy between growth and jobs. The State of Canada’s Tech Sector, 2016 found that technology-driven sectors are an increasingly important contributor to Canada’s economic growth. Another report, The Talented Mr. Robot, found that over the next 20 years, 42 percent of Canada’s workforce is at risk of being replaced by technology, specifically automation.

This dichotomy demonstrates that innovation can be a source of both anxiety and hope. This is because the risks and benefits of innovation tend to be unevenly distributed. Certain technology-driven clusters thrive but other communities struggle. The sought-after STEM (science, technology, engineering, math) worker, for example, feels optimistic while workers with lower levels of education are worried about their security.

So, while Minister Morneau’s upcoming Budget will undoubtedly contain timely, progressive initiatives, there is a deeper policy challenge to be solved over the longer term. How can Canada achieve inclusive growth in a new economy increasingly driven by innovation?

In the past, the need for human labour in performing routine tasks provided some natural protection against economic inequality. That’s why the “Jobs and Growth” agenda worked for so long. In the new economy, human minds are greatly needed, but not as many human hands. We need a modern policy formula that connects more people with those new opportunities – one that shares the benefits of the resulting economic success more widely.

Focusing exclusively on innovation, without understanding consequences for people, risks leaving too many behind. Focusing too much on wealth redistribution, without considering consequences for the economy, could put the brakes on growth potential, leaving everyone worse off.

There is a growing understanding that balancing between innovation-driven and inclusive growth is the shared economic challenge of our era.

To tackle this, Canada, as well as other developed economies, will need a much broader understanding of inclusive growth and how to achieve it. Policy makers will need deeper knowledge than the traditional economic indicators provide. How are risks and benefits associated with forces like automation being distributed across regions, genders, and other demographic groups? How can education, training, social programs and other policy solutions be modernized to ensure new economic prosperity benefits our population as a whole?

Innovation must be encouraged, accelerated, and harnessed for gains that benefit society and the economy. It is equally clear that those displaced by economic disruption must have pathways back to social and economic inclusion. We need to make Canada one of the world’s most innovative countries, but at the same time, we need to find the uniquely Canadian solutions that ensure everyone has a place in the new economy.

What better place to tackle this challenge than in Canada?

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