OTTAWA: In 2017, the United States government will attempt to revive industrial jobs from the 20th century — and we in Canada might be tempted to follow suit. Employment in manufacturing and resource extraction continues to decline even though a majority of the companies in the Toronto Stock Exchange Composite Index still belong to those sectors. Yes, it’s frustrating that these companies represent so much of Canada’s economic value yet employ fewer and fewer people. But no, they cannot revive jobs that technology is automating out of existence.
Rather than resist innovation, Canada should lead it. We can build an innovation ecosystem that replaces the industrial jobs of the past with the high-tech jobs of the future. As a first step, we need to develop technologies that maximize the value of our natural resources. Innovation in resource extraction and robotic manufacturing can amplify Canada’s strengths and turn us into a net exporter of technology. We must act quickly though because automation is imminent. The McKinsey Global Institute reports that “currently demonstrated technology” can automate nearly half the activities people are paid $16 trillion in wages to do. In jobs with “predictable physical activities,” the potential for automation is highest. Based on today’s technology, McKinsey estimates that manufacturing is 60 per cent automatable while mining is 51 per cent. In other words, manufacturing and resource-extraction businesses are poised to cut jobs in half, not add them.
At the recent World Economic Forum in Davos, Switzerland, the consequences of job automation were a reoccurring theme. Tech executives are already contemplating a universal basic income and other ways to mitigate the inequalities automation will produce. Their sensitivity is encouraging, but Canada cannot bet its future on the beneficence of foreign tech companies. That leaves us two choices. We can import automation technology from abroad and intensify unemployment. Or, we can build that technology ourselves and thereby create new jobs to replace the old. It’s an obvious choice with one major barrier: Canada’s innovation ecosystem is weak.
The Conference Board of Canada, a non-profit research organization, gave Canada a “C” on its 2015 Innovation Report Card, putting us in ninth place among 16 peer countries. They noted that Canada has no lack of entrepreneurial ambition, but to become a top performer, we have to “stimulate spending on innovation.” While tax incentives for startups appear to fill that need, I would argue they actually keep failing startups on life support and trap talent in doomed projects. Under the popular SR&ED program, startups can recoup more than half their R&D expenses, factoring in federal and provincial tax refunds. But why is every venture entitled to the same tax break? A savvy investor wouldn’t put $10 in every company listed on the Toronto Stock Exchange just to be fair to all. Likewise, our government shouldn’t assume that all 9,500 tech businesses in B.C. have equal chances of success. They don’t. To borrow the grading system again, we spend $4 billion annually subsidizing Cs and Ds when we could be transforming B+ and A- companies into A+ organizations that scale and create jobs.
Let’s say we did modify SR&ED to spur an innovation ecosystem that taps into Canada’s strengths. Under that paradigm, we’d give the biggest tax breaks and subsidies to startups that have the most potential to scale and stimulate other sectors of the economy. In B.C., we’d prioritize startups in industrial innovation given their ability to serve resource extraction operations nearby. Focus will be the key factor for our future success. To be clear, I’m not calling for more smokestacks. Sustainability is a core value of industrial innovation. Mining provides an excellent example. Today, with new artificial intelligence and sensors, machine operators can distinguish a scoop of waste rocks from a scoop of rocks with metal-rich ore. By ditching the waste rock and only keeping the more promising rocks, they can avoid wasting energy and save hundreds of millions of dollars. On the path to a carbon-free economy, we have to clean up the industrial processes that, like it or not, sustain us today.
More efficient drilling, mining, and logging are good, but not good enough. Our innovation ecosystem needs to capture more value from those resources by producing the finished goods. Why send Canadian wood to China so they can manufacture it into hardwood flooring and send it back? Why pipe crude oil from Alberta to the U.S. for processing when we could add more value here? Thanks to robotics, reviving manufacturing in developed countries is not far-fetched. Adidas will soon make shoes in Germany again at a factory where robots and humans collaborate to churn out one pair of shoes in five hours (versus the several weeks it can take in Asia). China, the world’s largest manufacturer, is already investing heavily in robotics, aware that countries with cheaper labour will otherwise steal its lunch. In the long run, building machines may preserve more jobs than being machines. Some countries will try to resist innovation through protectionism. I suggest instead that Canada becomes a global exporter of industrial technology. We’re endowed with a wealth of natural resources, an entrepreneurial culture, and a diverse society that can fuel thoughtful innovation. Rather than pine for the jobs of the past, let’s make the right choices to enable Canada to create industries of the future.
