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William Watson: Searching for small catastrophes

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My Financial Post column this week was prompted by David Akin’s National Post story last weekend about Peter Nicholson’s article in the November 2016 special issue of Canadian Public Policy on Big Ideas for Sustainable Prosperity: Policy Innovation for Greening Growth. (Did that sentence just set a Fraser Blog record for most hyperlinks in a lead sentence?)

Peter Nicholson is a modern renaissance man—computer scientist, operations research PhD, economist, corporate strategist, academician, policy adviser to Paul Martin—who has thought about Canadian economic growth for several decades now. His CPP article argues that Ottawa’s now century-old attempt to engineer an innovation economy more focused on manufacturing than resources has been a more or less complete failure.

Market forces, in particular the compelling logic of North American economic integration—Hey, everybody: the world’s biggest, richest economy is just down the road from most of us!—have proved stronger than any incentives government could offer up to compete with it. And thank Goodness for that!, most market enthusiasts will think: Ottawa actually getting its way with the economy might have us competing with Argentina for 40th in the Human Development Index rather than slugging it out in the top 10, as we do every year.

If you have failed at something for a century, Hollywood scripts would have you continue the fight until you eventually prevail: nano-bio-crypto-meta-driverless technology comes to Canada and we the North run the tech world for the next few centuries. Cue the orchestra and bring down the curtains. In reality, if you haven’t made something work in a hundred years it’s probably time to declare victory, withdraw and move on to other things, in this case leaving choices about which industries to compete in to people trying to make a buck in them. It’s not as if government doesn’t have other very important things to do where it might actually make a difference for the better.

In fact, Nicholson doesn’t articulate much of a policy response to One Hundred Years of Ineptitude. He does ruminate a little on what makes for good innovation, citing a 1972 paper by V. O. Marquez in Business Quarterly: “Building an Innovative Organization—Wanted: Small Catastrophes.” If you want to shake things up in a productive way, you need to put your organization under stress. But not too much stress. That might end up destroying it. It’s the kind of advice I hope Donald Trump is getting as he goes about trying to shake up the U.S. political system. You throw absolutely everything up in the air and the result may be a heap of upside-down rubble that doesn’t work in any way.

Of course, if you do want to engineer creative catastrophes (as Joseph Schumpeter might have have called them), government may be the just the agency for you. Lord knows it can put business under stress. The trouble is, how do you make sure the catastrophes stay small?

In terms of useful stressors, Nicholson recommends demonstration projects for R&D, a ramped-up carbon tax, and “carefully thought-out regulation.” No one ever recommends stumblebum regulation. Unfortunately, carefully thinking out regulation is a lot easier to do after the fact than before. Exactly what was needed in any situation only becomes obvious in hindsight and even then the obviousness is probably chimera. Complex processes are hard to control even in retrospect.

My favourite sentence in Nicholson’s paper is the last: “[T]he lesson of Canada’s history is that public policies to promote business innovation will have little impact on Canadian business strategy unless businesses themselves decide they have to become more innovative to prosper, or even to survive.”

Two points here: 1. How could businesses possibly believe that unless governments had made it true by letting them know, one way or another, that they are too Canadian to fail? 2. If businesses do eventually come to believe they need to innovate in order to prosper, will they then really need governments to help them?

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