OPINION: Innovation leading to productivity can dramatically improve our standard of living (The Province)

March 13, 2019
Jock Finlayson

What role can public policy play in facilitating the shift to an innovation-led economic growth model in B.C.?

Worker wages depend in large part on the levels of productivity achieved by companies. Many factors determine how productive businesses are, including firm size — productivity generally increases as companies grow — management strategy, workforce skills and the tools, technologies and equipment available to employees.

There is compelling evidence that a stepped-up pace of innovation is at the heart of increasing productivity. Innovation is not just about expanding the high-technology sector, although that is a worthy goal. It also encompasses the introduction of new ideas and products and the implementation of other value-augmenting changes by companies.

As the B.C. government’s Innovation Commissioner Alan Winter documented in his first progress report, B.C. has a mixed record on innovation. We have been successful in fostering entrepreneurial start-ups and in enabling growth among many early-stage innovative firms. However, B.C. sits well below the Canadian and U.S. performance benchmarks on other important dimensions of innovation, such as investment in machinery, equipment and digital technologies; private sector research and development activity; and the speed with which our businesses take up new technologies.

Perhaps the biggest issue we face is fear of change within B.C.’s companies, workforce and public sector — a fear centred on the mistaken belief that automation kills jobs. Previous waves of technological innovation suggest otherwise. The automation of more labour-intensive tasks and jobs will allow the workforce to be trained to take on more highly skilled, better-paid jobs which, in turn, can help to drive productivity and advance our collective standard of living.

To succeed and even survive in the future, more companies will need to incorporate and make effective use of technology at a time when we are seeing an avalanche of technological disruptions spurred by advances in e-commerce, artificial intelligence, automation, the internet-of-things and the rapidly growing “digital economy.” Companies in all sectors must ask how the deployment of innovative technologies can allow them to increase efficiency, bring new ideas and products to market faster and satisfy customer demands.

What role can public policy play in facilitating the shift to an innovation-led economic growth model in B.C.? One priority is to ensure that our businesses have access to the right kinds of talent, not just well-educated entry-level employees, but also senior people with expertise in fields like finance, business development, global supply chains, and executive leadership.

In addition, we will benefit from a strong system of social supports that enables people to to be retrained and then transition into jobs created in this new era of technology. Second, policy-makers should ensure that the tax system stimulates and rewards innovation as well as business growth. This calls for a fresh look at the tax rules governing investments in machinery, equipment, software, digital technologies and other forms of capital that boost productivity. The dramatic increases in statutory income-tax rates that apply as businesses in B.C. scale up should be re-considered. In some respects, the current business-tax regime punishes growth, which makes no economic sense.

Third, government decision-makers should recognize that tackling the productivity and innovation imperative is about more than just growing what B.C. Stats classifies as the “high technology” sector. The companies that fall within the official definition of the high-tech sector account for seven per cent of GDP and employ roughly 110,000 British Columbians. Continuing to expand the technology sector is vital. But the challenge of improving productivity is economy-wide.

Imagine if all 400,000 B.C. businesses raised their productivity by 10 per cent. The result would be $20 billion to $25 billion of additional economic output every year. This extra economic output, in turn, would support higher real wages for employees, increased capital investments by B.C. companies and revenue for governments. Finding ways to accelerate the adoption of digital and other leading-edge technologies across the business community is the key to building a more productive B.C. economy.

Ryan Peterson is CEO and co-founder of Finger Food and a member of the executive committee of the Business Council of B.C.’s board of governors. Jock Finlayson is the council’s executive vice-president and chief policy officer.

Published on March 13 in The Province.

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