Great Recession’s Lack of Investment Takes it Toll as Business Innovation in Canada Drops

The continuing stagnation of investment that set in during the great recession is catching up to Canadian business as innovation by Canadian  companies in 2012 has fallen dramatically.  Statistics Canada recently released the results of the Survey of Innovation and Business Strategy and its ominous headline indicates that Innovation in Canadian businesses has fallen off by a whopping 17 percent in 2012 to a mere 60 percent of surveyed companies indicating a level of measured innovation. This lack of investment is creating an  ecosystem  of reduced innovation within the value adding infrastructure of the Canadian business sector.This inevitably leads to lower productivity as more than 1 in 5 Canadian firms between 2009 and 2012 reduced their level of innovative activity. Ultimately this translates into an increasing downward pressure on  standards of living for Canadians.  The study reads like a dark shadow falling over the whole idea of building  a higher value adding/ high wage/ high innovation  economy that many developed countries are pursuing out of this great recession.decline

Developed countries like the USA, are highly focused on reversing the off shoring trend that was the focal point of corporate strategy for two decades, and “on-shoring”- high waged jobs back inwards is the goal. This of course will mean higher degrees of innovation, new business strategies and the like. However the results of this extensive survey suggest that Canada’s corporate leaders are not only just sitting on their hands, when it comes to investment, but the most critical area of investment into innovation is being cut back. The ongoing lack of focus on innovative investment by Canadian businesses is coming home to roost and it will mean more jobs lost, more decline and lower standards of living.


The question of where has all the investment gone has reached a crisis point for the Canadian economy and it is not for want of funds.  The investment conundrum famously defined by former bank of Canada governor Carney when he coined the term “dead money” was outlined  to Canada’s corporate leaders as he ridiculed them for sitting on mountains of cash. However what he failed to mention to the Canadians is much of this cash is not dead and as he full well knows, the cash sitting on corporate balance sheets is more  likely financialized into off balance sheet derivative trading. It is difficult to allocate just how much of an affect the finacialization of the economy is having on corporate investment decisions, but the  negative impact on the brick and mortar economy is real.  This due to much of the book keeping for these assets is  off balance sheet and  end up in what is known as the shadow banking sector of the economy. Not many statistics are kept on this portion of the economy, and as such not much in the way of regulation exists in the globalized casino however as the Bank of International Settlement (BIS) ,makes clear on the statistical reports the amount dollars involved in derivative vehicles is estimated at over $640 trillion dollars globally. This is up dramatically from the $400 trillion that was reported by the BIS before the finanical crisis of 2008 . So the question remains, how does the economy come out of this recessionary stagnation in terms of growth and declining worker outcomes, when investment seems to be caught up in other profitable and apparently less risky assets within the financial circuits of the economy.

A few key points should be underlined from the survey that add some qualitative and quantitative into the lack of investment question.

1) Innovation as defined and measured by the survey was significantly down from the ’07-’09 in to the ’10-’12 period by over 16% to 60.1% of firms signifying some form of innovation. Broadly speaking, this slow down in terms of innovation translates into further evidence of a slow down in investment- and most likely the most vital type of investment, when considering productivity and competitiveness which in the key areas of higher value adding. This also reflects the decline of the higher innovative  industries found in manufacturing and a continued expansion in lower innovative resource extraction industries.

2) Many progressive economists have praised such concepts as industrial strategy over the past several years for getting a foothold to climb out of this economic recession. One policy option that is critical in the formation of industrial strategy and is highly effective within a high value adding/high wage economy is targeted investment in the form of tax credits. In this study on Innovation,  firms surveyed indicated that the most critical of all government programs to support innovation are tax credits. Despite Canada’s Mr. Flaherty’s constant ideological stance of very low tax credits and as pontificated not wanting to “pick winners and losers” (which is quite a simplistic and destructive stance) it quite obvious that businesses feel this a required policy with over half of all respondents indicating that tax credits are an important determinant of innovation. Notably this is up from 34.9 percent in the previous survey period- which is highly significant as we stagger through this elongated slump.

3) Thirdly it  was quite enlightening as this survey sees through this whole notion that the Harper government has allocated a substantive amount of tax money on priming the pump on  skills shortages. However businesses reported that only a mere 7% felt that government help on training was necessary for innovation and this actually fell during this period from 19%. If indeed we were suffering through a massive skills shortage that the Tories claim, than I would imagine businesses would be ranking Training a lot higher than 7%.

Wow that last point is a zinger! How can the tories stake their entire human resource strategy on the country that there is a skills shortage when only 7% of businesses feel it is an issue. I have to say this empirical evidence surely must make the tories look again at the whole skills shortage argument it is indeed the straw man.

4) Lastly this survey again debunks the claim of small business being agile, innovative and bleeding edge as Large enterprises indicated a much higher innovation rate than small business.

Some very interesting findings.

When will this survey get cancelled??

This business survey is the highly cut back- business enhanced/ worker and labour content subtracted version of the workplace and employee survey (WES- long live WES! It was a survey to trump all surveys and take policy to the eternal fountain of truth of higher productivity and worker outcomes! Now a shadow of itself and look at our economy since WES was cancelled in 2009). We can now call it the productivity survey for sure.

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