Canada Needs a Revived Economic Council to Thrive in the 21st Century
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25 March, 2022 Canada Needs a Revived Economic Council to Thrive in the 21st Century
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25 Mar 2022
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March 2022
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March 25, 2022

The Empire Club of Canada Presents

Canada Needs a Revived Economic Council to Thrive in the 21st Century

Chairman: Sal Rabbani, Vice-President, Board of Directors, The Empire Club of Canada

Moderator
John Ruffolo, Founder & Managing Partner, Maverix Private Equity

Distinguished Guest Speakers
Jim Balsillie, Co-founder & Chair, Council of Canadian Innovators
Sachin Aggarwal, CEO, Think Research

Introduction
It is a great honour for me to be here at the Empire Club of Canada today, which is arguably the most famous and historically relevant speaker’s podium to have ever existed in Canada. It has offered its podium to such international luminaries as Winston Churchill, Ronald Reagan, Audrey Hepburn, the Dalai Lama, Indira Gandhi, and closer to home, from Pierre Trudeau to Justin Trudeau. Literally generations of our great nation's leaders, alongside with those of the world's top international diplomats, heads of state, and business and thought leaders.

It is a real honour and distinct privilege to be invited to speak to the Empire Club of Canada, which has been welcoming international diplomats, leaders in business, and in science, and in politics. When they stand at that podium, they speak not only to the entire country, but they can speak to the entire world.

Welcome Address by Sal Rabbani, Vice-President, Board of Directors, The Empire Club of Canada
Good afternoon fellow directors, past presidents, members, and guests. Welcome to the 118th season of the Empire Club of Canada. My name is Sal Rabbani, and I'm the first Vice-President, Board of Directors the Empire Club of Canada, and your host for today's virtual event, titled “Canada Needs a Revived Economic Council to Thrive in the 21st Century.”

I'd like to be in this afternoon with an acknowledgement that I'm hosting this event from Toronto, Traditional and Treaty Lands of the Mississaugas of the Credit, and the homelands of the Anishinaabe, the Haudenosaunee and the Wyandot Peoples, and now home to many diverse First Nations, Inuit and Métis Peoples. We encourage everyone tuning in today to learn more about the Traditional Territory on which you work and live.

I now want to take a moment to recognize our sponsors, who generously support Empire Club, and make these events possible, and complimentary, for our supporters to attend. Thank you to today's lead event sponsor, Think Research, and our supporting sponsor OMERS. Thank you also to our season sponsors, Canadian Bankers Association, LiUNA, Waste Connections of Canada, and Bruce Power.

I just want to remind everyone participating today, that this is an interactive event. Those attending live are encouraged to engage by taking advantage of the question box, by scrolling down below your on-screen video player. We'll try to answer as many audience questions as possible throughout the discussion. If you require technical assistance, please start a conversation with our team chat button on the right-hand side of screen. We also invite you to share your thoughts on social media, using hashtags on-screen throughout the event. To those watching on-demand later, and to those tuning in on the podcast, welcome.

It is now my pleasure to call this virtual meeting to order. I'm delighted to welcome Jim Balsillie, and John Ruffolo to the Empire Club of Canada's virtual stage. Jim Balsillie is Co-Founder and Chair of the Canadian Council of Innovators, John Ruffalo is Founder and Managing Partner of Maverix Private Equity, and our moderator for today. You can learn more about both speakers by scrolling down below your screens to read their full bios. Jim, welcome and over to you.

Opening Remarks by Jim Balsillie, Co-founder & Chair, Council of Canadian Innovators
Good afternoon and thank you to the Empire Club for the invitation to participate in today's discussion on capacity-building in Canada, particularly in response to the economic challenges presented by the 21st century knowledge-based, and data driven economy. In a few minutes, John and I will begin our discussion., but first, I want to provide some context for why I'm advocating to re establish the Economic Council, and to provide our policymakers with relevant research and policy analysis, to develop a long-term policy agenda that advances Canada's competitiveness and prosperity. The digital transformation and the accelerated pace of innovation over the past 40 years has created a new kind of economy, in which the basis of wealth and power is derived from the ownership of valuable intellectual property, and more recently from the control of data. IP and data have different features than tangible goods. They behave differently in the marketplace, and therefore require different treatment for both organizations, and policymakers. This transformation is also creating a new kind of social and political space, reshaping both public, and private spheres. IP and data are now the world's most valuable business, and national security assets. As demonstrated on this slide, the chart on the left shows that in 1976, 17% of the value of the S&P 500 was intangibles, and today they comprise over 91% of the S&P 500’s $40 trillion total value. The chart on the right shows how Canada has seen a decline in intangible capital, even as the global stock of those assets has been rising around the world, reflecting the root of our policy challenge.

The tangible and intangible economies are fundamentally different, and therefore require equally fundamentally different policy strategies. If you take nothing else from this discussion, take this: the transition from a production-based economy, to a knowledge-based economy, has foundationally changed the structure and behaviour characteristics of companies; therefore, applying traditional economy policy strategies does not work. On this slide, I have made a comparative list that shows how assets behave in these two different economies. In the production-based industrial economy of tangibles, the ability to produce efficiently at scale, and sell at lower prices, enables the capture of markets, which underpins profitability. While in the knowledge-based economy, companies focus on owning and controlling IP and data, which enables them to control markets and capture superior economic rents, often with increasing marginal returns. Instead of competing on cost and supply chains, IP and data owners fight for dominance in value chains, where a company makes money from IP embedded in products, rather than from the labour embedded in their production.

So, what happens when a country fails to compete in the knowledge-based economy? The OECD recently projected the Canada's economy will be an I quote, “the worst performing advanced economy over the 2020 to 2030 period, and the three decades after.” Moreover, since 1976, Canada's productivity performance has been the worst of all OECD countries, resulting in real wages remaining stagnant ever since. This directly affects the daily lives of Canadians, shrinking the share of income and wealth, impacting households, but also public services.

It's time to build up our country again, following the example of the strategic thinkers from our prior economic era, who developed initiatives for nationally-led infrastructure, community industrial co-operatives, and sound social policies. On this slide, I have listed strategies, institutions, programs, and policies, that would make Canada more competitive in the contemporary economy. The COVID-19 crisis has demonstrated just how important it is to have governments that are competent, adaptable and accountable. Given the challenges coming from areas such as inflation, public health, climate change, the digital revolution, and China's increasing geopolitical importance, and not to mention the events in Ukraine, it's clear that neoliberalism’s hands-off approach to the economy is untenable. Canada's government, particularly our civil service, needs dynamic capabilities and capacity, and reviving the Economic Council is a strong way to start. Over to John now, and I look forward to answering questions throughout our discussion today.

John Ruffolo, Founder & Managing Partner, Maverix Private Equity
Great, well, thank you very much, Jim. I appreciate those remarks, and there's a lot to unpack there. So, folks, what we're going to do is that I will start this conversation with Jim just to unpack a few of those key messages, and then we invite you to submit any questions that you have. And then what I'll do is I'll intersperse your questions with a number of the questions that we have for Jim. It's more important for us to make sure that we address your questions first. And for those of you who would like to get a little bit more background on Jim, what Jim's saying on here, I do refer to an op-ed that Jim wrote in The Globe and Mail; it was February 5th, which really summarises this position. So, it's a good refresher for those who are trying to understand this. And, you know, I do recall when Jim clobbered me over the head on this point back, I think, Jim, it was throughout 2016, which actually led to Jim and I forming the Council of Canadian Innovators. And I had no idea what Jim was talking about to be completely honest, and it was like he ripped the Matrix out of my chest, and I didn't really realize how the rest of the world was starting to play a different game, and Canada was left behind. So, I think this is really something that Jim's really been working on, and now the problem is, it's really showing up everywhere that we look. So, Jim, just now going back to some of the things that you had said, if you can just really articulate the fundamental problem that we're trying to solve here for Canada, and if you could make kind of specific reference to what was Canada doing, kind of from our post-WWII industrial policy framework, and how did Canada achieve wealth based on that framework? And then contrast that to what happens under that same framework in an intangible world, and how economic growth is actually achieved?

Jim Balsillie
Sure, happy to. It's very important to understand that the change in the global economy in the last 30 to 40 years, is unprecedented in human history, in its degree and rapidity. So, we make a mistake when we talk about the post-WWII economic order, like it's some something baked then, because it was based on a liberalizing trade within Western-type democracies, and competing on what's called comparative advantage, where if you make the cup, and I make the saucer comparatively better, not absolutely better, if we trade, we all benefit. And then in the late ‘80s, in the ‘90s, there was a rapid ascent of—and trade agreements, I should say, spread competition. In the late ‘80s, and the ‘90s, there was a rapid ascent in global agreements, starting with the original NAFTA with the US, to insert IP provisions, and then into the trade-related aspects of intellectual property provisions, called TRIPS, in the WTO. And then those were amped up again in the TPP, called TRIPS-plus—and I say in USMCA, that's TRIPS-plus-plus—ever increasing marketplace frameworks to spread monopolies, based on absolute advantage, not competition based on comparative advantage, because you compete on owning an idea, which is a negative right, not just tangible production. So, the world structure foundationally changed. And that's where you see that shift in that chart, really in the ‘80s. And it's been a pace, and we did not change our economic capacities, we did not change our approaches, our policies. And when the rest of the world was upgrading their analytical instruments in their aeroplane, metaphorically, to fly this difficult terrain, we took our air our instruments off our aeroplane, and there's a direct causal relationship between not having this capability, and Canada's GDP per capita. And because of this, when our when the strategies don’t work, they manufacture false myths of no fire, the resource curse, proximity, US market, no business receptors; all of these are not substantiated by any economic analysis, and can completely be linked to the mismanagement. And it goes right—and what we learned more recently, as the realities of the world picked up, these are not just prosperity assets, they're national security assets, whether it's cyber preparedness, whether it's vaccine and mask sovereignty for public health, and so on. And so, yeah, the world changed, and we should’ve changed, but, you know the old expression, “the best time to plant a tree is 20 years ago, the second-best time is now.” So, let’s get going!

John Ruffolo
Jim, you said something, and you made reference to what's going on with the Ukraine, and I just want to correlate that. You know, this shift has been going on, starting about 40 years ago, or so—I think you made reference to 30 years ago—but now we're starting to see the impacts of that shift live, through the last couple of years with COVID, and now with the crisis in Europe, Russia and the Ukraine, and we're starting to see the world move from post-WWII Bretton Woods Arrangement—where the US guaranteed the safety of trade liberalization around the world, and would protect that, largely with their control over naval waters—and now we're seeing the world in a much more dangerous place. And many pundits, probably very late, are starting to say, “we are now entering a reversal of globalisation.” How does that impact the thesis that you have here, in terms of the shifting to the intangible property world?

Jim Balsillie
Well, it accelerates it's imperative, because these things are dual use, first of all, that they represent national security, and we don't have the provisions that our Five Eyes partners do for security, in terms of analysis, in terms of research partnerships. These things have social implications, both for democracy, and well-being of societies, and fairness of markets. And yesterday was historic: the Digital Markets Act was put forward by the EU, and yet, where are we in this? And they did privacy a long time ago, and of course, the need for updating up enhancing our security strategies, and where our standards, and our implementations there, both for public infrastructure and commercial infrastructure. So, yeah, and we've learned a hard lesson on lack of sovereignty for vaccines, and for masks, during the pandemic; and that just plays out in every sphere you want to go. And again, you can go on these value chains in digital as we go to digital currencies, and how do you grapple with those, because they trade off all kinds of rights, and interests, and powers, and so on. So, all roads go to upping our capacity, because these recent developments, and of course, the geopolitics of China before and during all of this, has amped all of this up. And we could spend all our time on just what other nations have done. All roads go to Canada that just upping its game on this, in very, very specific fashions, some of which I laid out on that last slide.

John Ruffolo
Yep. And Jim, you had said, and this is kind of part of the problem, Canada is fundamentally falling behind economically. And if you could just poke at that, and explain what do you really mean by that, in terms of the wealth of this nation? As you know, governments in the last number of years have been accused of splitting the pie more finely, as opposed to growing the pie. Is that true, and how do you know that? And if you could give some examples when you when you explain that, of other countries that actually might be doing it right, in your view, and if you wouldn't mind explaining that. And one of the old criticisms that Canada has, you know, we were the drawers of water, and the hewers of wood. Are we still that, really, when you go through the economic analysis?

Jim Balsillie
Yeah, well, that's a big question. I mean, first of all, I mean, we sell a couple pennies of pulp, and then they sell us back a mask, and then we fund them to build a manufacturing plant in Canada on masks, but if you search the IP directory, I think you'll find the right number is 6000 3M patents with the word mask in it. And then, as we start to want to move to the electrical vehicles, we spend, I don't know how much money on a plant, but it's an assembly—and I'm all for the assembly jobs, but who captures all the value on the IP on that? And so, the point is, if you don't play the game to insert value chains, we are indeed the hewers of wood and the drawers of water in this, but in a changed world, where the prosperity is there. And GDP per capita is money in your jeans, whether it's to pay for government services, or personal services. And I think we have to be honest about, you know, the affordability of life, and the quality of life, and how do we drive the prosperity for our country? It's an expensive country, it's a beautiful country, we all love it, but it's an expensive country to pay for the quality of life, and the social programs, and all the things we value, and we want to do Ukraine, and climate, and all of this kind of stuff. But, if we want to shift to climate technologies, we are a pauper in the ownership of those technologies, even though we invent so many of them, including battery technologies, and fundamental artificial intelligence, and so on, and so forth. So, the bottom line of it is, that we have to learn to play the game to insert in value chains, which is a different toolkit, and we never updated our toolkit. And then when we don't perform well in productivity, we manufacture, or people manufacture false myths, rather than looking at the core issue of what's our value chain freedom to operate strategies? Which is job number one in any prosperity strategy and security strategy, in an intangible economy.

John Ruffolo
And Jim, I’d also refer back to when you wrote that op-ed. You presented a very troubling graph of comparing the GDP per capita, Canada versus the US, and the gap has increased so greatly where, part of the problem from a public policy perspective is, either we cut our beloved social programs relative to the United States, or we continue to borrow, and try to borrow our way out of this, which is obviously, you know, not a long-term strategy. We are having questions coming in fast and furious here. So, Jim, I'm just going to pause, and just want to address some of the questions from the audience here. Jason asks, Jim, what concretely can, and should our Canadian government do, presumably to create an environment of greater innovation? What can Canadian-based intangible or IP companies do as well?

Jim Balsillie
Well, I think the IP companies are—I've never ceased to be impressed by the entrepreneurs in Canada. And I think, overwhelmingly, they thrive, in spite of the public policy, not because of the public policy; and imagine what would happen if we put the wind at their back instead of the wind of their face. So, we have all kinds of research funding programs where we don't, we give away the best ideas to foreign firms. What if we give those best ideas to Canadian companies? And so, then they say, well, “Canadian companies don't invest, even though we spend all this government called GERD,” and I go, “well, there's nothing to invest in, you've given to foreign firms.” So, no other country does it like that. We pay countries to come here, to take our best people and best ideas through FDI strategies. So again, we don't have a proper analytical framework. We enter into trade agreements, not understanding that in the million words of the USMCA, the two words you won't find are “free trade,” These are marketplace frameworks to spread monopolies; so what's our monopoly spreading advantage? And we really just go in playing defence, trying to attenuate the erosion. And so, there's no end of things. And of course, there's elements of procurement, there's elements of many, many things. They're doing new digital programs for $4 billion. Has there been a comprehensive analytical approach that that's actually going to design the future we want for Canada? And, you know, five of the seven approved vendors are foreign tech firms, so is it just going to make the foreign rich, richer? So, you could go on and on. Start to do positive things, stop doing negative things, it all—I really couldn't understand what was going on. And then I had this experience, where the largest innovation project in the history of the country was giving Google control of our biggest city, in the Google Sidewalk. And there was no involvement of innovation planning, no innovation strategy, no innovation leadership in it, in the civil service. And it made me realize is, they thought something that was a horrific idea, was a wonderful idea. And then it made me realize that you just have to go back to the fundamental capacity of the analysis, and the analytical framework, and the capacity building. You know, as Maya Angelou famously said, “When you know better, you do better.” And these are hardworking people, they're smart people, but you've got to give them the toolkit.

John Ruffolo
Jim, Barbara asked this question, and it's a question that you and I have chatted a lot about, we hear so much in public policy circles. Canada spends a lot of money supporting R&D, you know, we have the R&D tax credit. And what is the fundamental problem you see in terms of, is Canada focused in on the wrong area of activity? Are we generating the IP, but the problem is not owning it, is the problem not protecting it? You know, one of the things Jim, you and I have talked about, which we kind of scratch our heads is, Canada is one of the only countries in the world where you can generate a research and development tax credit, but yet not own the IP. Any comments on this question?

Jim Balsillie
Yeah, well, I mean, we confuse invention with innovation. We fund the creation of the idea, but we don't have strategies to own the ideas. So, I chaired a provincial panel on this—and credit to the Ontario government for being open minded on this—one of the things we looked at, all these other countries around the world have strategies to own their ideas and put them in collectives. People talk a lot about the Fraunhofer Institute in Germany; 29,000 employees, researchers and employees, one centralized tech transfer office, which is super elite. We have between two and three dozen TTO’s in Ontario alone, and yet we're a small fraction of the size of the Fraunhofer Institute, so that's a two orders of magnitude structure difference. And so, the issue is, we don't have frameworks, policies, and strategies, to own the ideas; and that's the terrain of these 1980’s, 1990’s agreements, they were all the marketplace frameworks for owning ideas. And we didn't shift our lens from a post-WWII set of strategies for a tangible world, to an ownership set of strategies in an intangible world. We don't have owner—and we don't teach it, we don't govern for it, we don't provide market services. Sure, to the credit of the Ontario government, they've started the IP, Ontario, there's a pilot on an IP collective for Canada, but these are 2022 initiatives. It needs to be far, far more, and far, far more systemic. And, of course, the very difficult question, why wasn't it done decades ago?

John Ruffolo
Jim, Scott asked a question here around value chain. Given that competition has changed from supply chains, as you had articulated, to value chains, and from competing in markets, to competing to control markets, what is the best way for a company to do that?

Jim Balsillie
Well, the first thing to do is education, and you have to develop what are called your “freedom to operate strategies.” And so, there's roughly a dozen different kinds of IP. You've got to be trained for it, you've got to have a very systemic assessment of your competitors, and it's a very nuanced—it's like a spice rack for a chef—it's a very nuanced navigation to build, insert yourself in value chains where nobody else wants you there, because every dollar you take out of the value, is a dollar that is not in their value chains. And value chains are very unstable. They shift nonlinearly, you know, by the—as an unfortunate move. Whereas in supply chains, you're delivering the physical goods, they need you there. So, you need education. IP Ontario and the Innovation Asset Collective are creating education things on this, the Council of Canadian Innovators is doing the Innovation Governance Program for Board of Directors, you know, and what happens to people is, they start to learn a little bit and they go, like, “why haven't I been taught this over the last 20 years?” And it does say, like “oh, my God, I gotta go to school.” And so, it has to be an education. This is not just about generating, you know, patent agents, filing patents—bless them, though—this is the strategic navigation at the executive level, to chisel into a value chain where, quite frankly, everyone else is trying to squeeze you out for their benefit. And that's the nature of the game. And if you start to understand that lens, every little squabble you see between Korea, and China, and the US, and be Silicon Valley firms and all that, it all makes sense.

John Ruffolo
Right.

Jim Balsillie
They're all trying to squeeze the value chain, somebody out, and expand themselves, and that gets explosive multiples in their valuation because it generates increasing marginal returns. And that's why you have these multi-trillion-dollar companies just exploding in the last decade, because it's a structure of the system for those who participate well in it. And all I want is our public policy to understand that deeply, and engage incredibly intimately with our firms, to help them put a zero on their revenue and their market caps so that those prosperity drivers come back into Canada. Tax them, but that’s generated too, so that we can pay for this beautiful country that we all love.

John Ruffolo
And Jim, one of the things that you taught me—which I didn't fundamentally understand—is in its simplest form, a value chain is created by the ink in a pen, where supply chains are built in a very complex system, usually predicated on the access to resources, energy, etc. And you can physically see that, but, you know, these value chains could also be broken with the stroke of a pen as well, too. Jim, Senator Colin Deacon, who’s been a huge supporter of these ideas, asked you a real fundamental question—and we're getting a number of questions around this—how do we address the intensely risk-averse culture in Ottawa, where mistakes kill careers, yet mistakes are part of innovating and iterating?

Jim Balsillie
Well, I mean, I don't think there's been a lot of shortage of mistakes recently, and I sort of covered those some of those in my op-ed, you know. I talked about—I referenced the recent piece by Lauren Dobson-Hughes, about how we dealt with COVID at the beginning of our retreat out of Afghanistan. And then I talked about how we did our payroll system, or our procurement, or our privacy legislation. So, we're making lots of mistakes. I don't think it's the risk averse culture, I just think it's the—it's an aversion to experts, it's a simplistic orthodoxy, I think a lot of it's fundamentally a senior leadership issue. I teach at the Canada School of Public Service, and I found a tremendous hunger on the emerging set of leaders to understand this, and they want a better country for themselves and their families and so on, and they're not trying to protect a legacy. And so, I don't think it's risk aversion, I think it's legacy protection. And I think we have to be honest, that people have to acknowledge what we did wrong, and quit trying to spin myths, and grade their own homework that said everything they did was great. And it's just a lazy business culture resource curse for it. So, I don't think it's risk aversion; I think it's trying to not acknowledge reality.

John Ruffolo
And so, from an execution perspective, do you think this is a question of training or retraining, whether it be the civil service or politicians to understand this? Or is it something more fundamental? You know, we talked about the one advantage that the United States has, for example, is that they can bring in into their civil service some of the greatest minds in the country, having real teeth in decision making, but yet they're not elected officials, and they're not permanently part of the bureaucracies. Is there something in there that you that you have some thoughts around?

Jim Balsillie
Yeah, I mean, gosh, we could spend all our time on that, but let me give you a very specific example; legislated by law of Congress, the US Trade Representative has to maintain 27 permanent tables of experts for trade relationships, and that’s—26 of those are sectors, like pharmaceutical, Hollywood, and 27 is the integration table. And they've been around for decades. If you notice, when NAFTA happened, they dropped a million words of draft stuff, and there were 26 negotiating tables. So, we went in with a general ad hoc sense of understanding, against 26 multi-decade, deep state, expert panels per sector, who are fundamentally trying to foist the wording that expands, that spreads their monopoly to collect rents. And we didn't have that. We didn't have an analytical framework. We just said, “more trade is better,” not understanding that these aren't trade agreements, these are monopoly spreading agreements. And so, that percolates through everything, whether it's the design of super clusters, where they're trying to clean them up afterwards, the design of the recent $4 billion digital programs, you know, FDI, they started that in FDI agency without proper analytical framework, they still haven't updated the research funding in spite of what all the rest of the world is doing. Goodness gracious, I mean, let's just, you know, it's obvious these things have—inattention to the to the stewardship of these assets has enormous prosperity and security consequences to the country. And it's just not that hard to create an expert zone. And I've been engaged in this, they just create the thing, the entity, give it its independence, and then have an integrated office in the PMO that synthesize these things. I'm seeing all this happen at the sub-national level, where the provinces are jumping all over it. And I was out West last week, and the big provinces there are doing it, Québec's doing stuff, Ontario's doing fantastic national leadership in its stewardship of these issues. So, I think it's an orientation, it's leadership. I think it's all doable, I just think civil society has to say, “we really do need this now.” It's not like we haven't heard the lamenting of prosperity and security. So, you know, the issue is—but it has to be expert driven; this is an expert realm. And it cannot be these generalized, you know, ad hoc groups that kind of opine based on non-expert experience.

John Ruffolo
And Jim, Peter asks this question, which is one of the more frustrating questions as Canadians. If we all believe this, and see this happening, what is it going to take to create a sense of urgency, to really get this done—like, are we going to wait until we're in a disastrous situation? Like, what do you think needs to be done for action to be spurred immediately?

Jim Balsillie
Well, I think there's a tremendous role for civil society. And I think if there's one thing I could say here is—and you've been great on this, John pushing for things for the domestic innovators, and being a lion on that stuff—you fundamentally believe these companies need to be supported, to create the prosperity for our country, for our kids and grandkids, etc. And so, I think, and this is why it's a real honour and pleasure to be with you all today, because mine is a call for civil society that public policy has never been more consequential than it is now, and that these things are very specifically addressable. And nothing is about money. I'm not saying spend more money, I'm simply saying, put the frameworks around for the money you are spending, whether you choose to spend more or less, I'm not going to go there. So, if we're going to do a battery plant in Windsor, how are we going to participate in the value chains? If we're doing, you know, superclusters, how are we participating in the value chains? If we're going to do a CARPA, how are we going to get the value chains there? If we're going to spend $4 billion on digital infrastructure, or, you know, however many billion on other research things through the granting councils, how are we going to share in the outcomes of this, and not just be global philanthropists to, you know, foreign firms and countries that are rich and getting richer—bless them—they want that hospital in their hometown paid for. They don't really think about Canada, any more than we think that's just the normal national approach. We worry about our athletes winning gold medals, not the other countries, so, we have to look after ourselves. And in an absolute advantage world of ideas, honestly all alliances are rather uneasy, unlike the post-WWII structure. It's a much more uneasy global structure of mercantilism, certainly in the economy, but then the security has been really dealt a curveball in the last month.

John Ruffolo
Jim let me pull on that string. I'm getting a number of questions that are pulling on that string that you're saying, like, you know, fundamentally, we've been taught to believe in a free market economy, versus a controlled one, and I think that we do mix political versus economic structures. And how do we distinguish that political versus economic, in a free market economy versus controlled—and is a free market economy really a notion that never really existed? And then how do you mesh that with the concept of free trade, and liberalization? And you've laid out a number of examples of how other governments really play this role; and it's not intended to be an intravention of governments superimposing themselves on private companies, but really playing in the shadows to help elevate them. Can you just explain that?

Jim Balsillie
Sure. So, in free trade, the econometrics were liberalizing trade and tangible goods, capital and labour. However, in parallel—and so, that's the Ricardian comparative advantage of traditional production economy—however, in the ideas economy, all of the strategies were decidedly illiberal. They were not liberalizing trade; they were monopolizing markets. And so, whatever the consequences of that, as intangibles become a greater proportion, then there's no free trade. I mean, I don't know how to say it any differently. There's a million words in USMCA; the only two words you don't find are “free trade.” It's about spreading monopolies and participating in the monopoly rent extraction game of absolute advantage. What it means is, you always have comparative advantage in the production trading game, it's just relative, but in the ideas economy, you can have absolute advantage in 10 out of 10 sectors. You can be the landlord in every building, and others are the tenant. And so, we don't have landlord strategies, we have tenant strategies. And then we confuse increasing IP protection, when we're an IP pauper. So, we're advocating for increasing rents as a tenant, against our own interests, rather than either lowering those provisions—which is too late now, because we signed on to agreements, treaties, in CETA, and USMCA, and TPP—or we fundamentally build strategies to become the landlord. And those 26 tables, with the 27th integration of USMCA, USTR negotiating per the executive, within the Executive Office of the President, are all about landlord extension strategies. Look, if you go to Halliburton website, they say the future of oil is digital. So, the value chains that shifted in the taxi business, or the music business, or the hotel business, or the retail business, the same is happening in agriculture and energy. So, our traditional businesses, you'll see more and more the value move to these digital realms. So, what is our digital value chain strategy, if only to protect and extend our existing businesses; because we saw what it did to retailers, and taxi companies. Don't think that a farm isn't similar in structure—if you control the IP for the fertilizer, the crops, and the data to control the machines, who really controls the economics of this—not unlike the Airbnb’s.

John Ruffolo
Right. And Jim, you know, where it was most vivid when you help me understand it, is that you forced me to go and read the actual clause of the Trans-Pacific Partnership, and the IP clause. And you were—it was easily identifiable where you thought you were negotiating against, say, the US government, but you weren’t. You were negotiating against Pfizer, Disney, Google, etc. And that was a brilliant strategy, and yet, the Canadian companies were just left hanging in there. And already the weapons were drawn against us in those trade agreements, and we just stood silently by at the table, just kind of watching that happen to us. I just thought that was a very vivid—Jim, you're getting a number of questions, and there's a number of folks asking a similar question, I see Blake, and I think it was Yomi, and some other folks. Can you elaborate the difference between FDI, so foreign direct investment, where we have foreign multinationals or foreign companies investing in Canada, versus access to foreign capital, that are supplying capital to our domestic companies? And how you view the two differently?

Jim Balsillie
Yeah, of course. Yeah. Like for instance, if you take out—okay, in the tangible production economy, when you open a foreign branch plant into Canada, say, an oil upgrade, or pulp and paper, management and technology flows into Canada with that, and also the tax base, because you're taxed on the value-add of production activity. In the intangibles economy, you're taxed-based on where the IP is owned, which is outside of Canada. And when you buy a small company, the management and the IP is sucked out of Canada, so that's got a negative spillover. So, the spillover structures for a foreign branch plant are fundamentally opposite, in the overwhelming cases in production economy versus ideas economy. But, if you get foreign portfolio investment, whether it's, you know—and I am a big fan of the Québec Inc. folks, because they think about their nation, or their economic entity, whether it's Coveo or, say, Lightspeed there, or others across the country raising $100 million, or $200 million, that's portfolio investment, but the company stays in Canada. So, the management, and the technology, and the base, and the ecosystem dynamism, gets nourished here. So, if somebody's going to take out something from the country in an IP, understand that that's got negative spillover, so the paycheck you get must be higher to compensate for that. And that's kind of how other countries do it with their FDI review plans, and with their tax strategies—Israelis do it. And so, that's the difference between a portfolio investment, where you keep the company here, and a direct investment, where all the dynamism comes out of it.

And if I can just quickly segue to your previous point, where you talked about the foreign companies negotiating on trade, and I sort of got you to read that, Canada was built on collective strategies. We built grain co-ops, credit unions for financing mutual companies for insurance, investment tech core, vertical technologies, like, say, Astra for SAGD. Canada was a structured collective approach, because of our circumstances, to counteract the things you've done here. So, if you look at the list on the last slide that I put up there earlier—and I hope it'll stay on after this, if people want to go back to it—I'm calling for much more organized community collective, regional, national approaches to IP collectives, to data pools, and so on, to counteract that mismatch. So, I answered two questions, FDI versus FPI, and basically, we want to raise—you want to be open for capital, but the firm is the agent of our innovation. That's our golden goose, and if you’re going to kill the golden goose, you better get a big check for it, because if you look after them, they lay all the eggs. And you see the countries that are very successful, Taiwan, Israel, Japan, South Korea, Germany, Scandi’s, US, of course; they all look after the firm. And that's my orientation, that—but an analytical framework of the flows and spillovers would change your thinking. But we went into what I considered the most damaging economic policy of our time, the Sidewalk Labs, thinking it was a good idea, when it was the worst of ideas security, socially and economically, which goes to show they don't understand the spillovers.

John Ruffolo
And Jim, I think it was it was a great summary. And, the only thing I would just add, is that you're absolutely right. When there’s foreign-based capital coming into our country is absolutely great., but without a strong domestic capital here to counterbalance the magnetic attraction of moving, perhaps, or having the pressure of eventually moving the head office, or the centre of economic control of that Canadian-based company, to a foreign jurisdiction, is also a bad idea. So, you can't have great inflows of foreign capital, without having strong domestic players here, co-investing with them, or else we're going to end up in a situation that we had before 2010.

Jim Balsillie
And I'll just say you're going at the issue of temporary versus permanent capital, and REITs ecosystem agenda for dynamism for the long-term prospects of the fund that's at play. I didn't address that on my FDI versus FBI, but I can certainly I certainly agree with you that, yeah, the structure of that capital for broader thinking of the capital's play into these firms, even as a portfolio investment, I agree with you, is highly relevant.

John Ruffolo
Right. And frankly, that was the thesis why Maverix Private Equity was born, to counterbalance the significant later-stage growth capital coming in from foreign sources. So, folks, we have a multitude of questions that are flying in, but unfortunately, we have time just for one more question for you, Jim. Two? Okay. Actually, one question we're getting here is, you speak to the Economic Council, and you list some great components of it. Any thoughts on who should be on that council?

Jim Balsillie
Well, yeah, I mean, just get experts. It's like, get experts on, you know, on the economics of it, on the legality of it, on the analysis of it, on the program design. Yeah, yeah. I mean, you look at these things, you know, I mean look, we did USMCA without analysis of the 90%, part of the agreement on the economics, we don't know what it's effect is. So, imagine if you had people who could do the analysis of the frameworks, so that when they make a decision and look at the words, they have analysis. But you need econometrics of contemporary trade agreement experts, as an example; research funding is another; FDI dynamism is another Yeah, I mean, get the experts.

John Ruffolo
Well, Jim, Chris Causton here has the final question. And first of all, I apologize for everyone else, there were so many incredible questions here, Jim, this could have gone on for a lot longer here, but Chris asked this question, and it's really a question for you, Jim, as it relates to everyone here who's listening in. Can you give us some suggestions of what we—we, being the audience here—can do as senior businesspeople, to help accelerate the shift we need?

Jim Balsillie
Yeah, I think all roads go to education. The Council of Canadian Innovators is doing the Innovation Governance Program to teach people. I think the Innovation Asset Collective is doing courses on this for executive teams. I know that with IP Ontario, they're doing curriculum to actually bring this into the undergraduate and postgraduate. I think the most important thing is learning, and then advocating for sovereign approaches to build these intangible stock assets in IP and data, for both our social well-being, mental health of kids, and so on, our security, which we talked about, and our prosperity. So, I think it's learning, and advocacy by civil society. And we have to stop this kind of, you know, people doing what you call gaslighting, that there's a trade-off between innovation and privacy, or those that have had trouble in their policies in the last 30 years writing articles saying they've done everything great, but the business community's bad and stuff like that. We have to push back on the false myth—or that jobs are all we need, knowing that we all know so many people that are working poor, and it's not just a job, it has to be a living wage. So, I think we have to push back on the spin, and the gaslighting, and the reputation washing, and understand what side our bread is buttered on—which is our firm's—and our domestic sovereign capacity in what we've learned in a harsh way is a very turbulent world. But any engagement would have seen that 20 years ago, that this was all happening. But we were, you know, we were protected by legacy structures and high-priced oil. And we may get a bit of a break again in this terrible tragedy again, but the trends are irrefutable. We have to learn, and we have to advocate as civil society for the country that we want.

John Ruffolo
Well, Jim, that's the end to the to the questioning. Thank you so much, Jim. We really appreciate all your thoughtful responses, and Sal, back over to you.

Sal Rabbani
Thank you. Thank you, Jim and, John. Thank you for sharing your insights and perspective. Now, I'd like to take the opportunity to welcome Sachin Aggarwal, CEO of Think Research, to deliver some appreciation remarks. Welcome, Sachin.

Note of Appreciation by Sachin Aggarwal, CEO, Think Research
Thanks so much. And listen, that was just great. On behalf of everyone, I'd really like to extend a big thank you to you, Jim, for sharing your insights with us today. We, as Think Research, we were very keen to sponsor this event, and this important conversation, because we at Think Research, as a member of the Council of Canadian Innovators, but not only us, many other technology and software companies in Canada are very lucky to think of you, and also John, as mentors. It was at your urging, that a number of years ago, we began our own IP strategy, and today, we're patent filers and holders. So, we thank you for that. I think, in these dark times, we've all learned how truly ill-equipped many of the country's institutions, structures, and frankly, priorities are—especially in this age of innovation. But at the same time, it's also proven that governments have the extraordinary capacity to marshal resources and affect change when it's needed most. They have the capacity; they just have to do it. So, we have to be deliberate, and we've got to be intentional in order to succeed, and I think that's what you're calling on us to do. You're calling for establishing an Economic Council that's data-driven, and really laser-focused on harnessing that applied knowledge. And this is really critical, it's really crucial. It needs to draw from the vast wealth of knowledge available in the country, tap into the country's universities, think tanks, research centres that are just bursting with intelligence capabilities, knowledge, insight—and really use and harness all of that. It's a first step towards keeping us competitive, by providing the critical research, and sound advice for today's economy, and kick-starting the mobilization, leveraging, and integration of those results for the benefit, frankly, of our policymakers; and, in turn, that's going to benefit all of us, right? I'm not alone in saying that this was incredibly informative, and very valuable, and, and it's a critical step to ensuring that we've got a very bright future. So, thank you for that. And with that, I will hand it back to Sal.

Concluding Remarks by Sal Rabbani
Thank you very much, Sachin, and thanks again to Think Research for supporting today's event. To Jim Balsillie, John Ruffolo, and everyone joining us today, or are participating later on-demand. Our next event will take place on March 30th, at 12 noon, Eastern Standard Time. Join us, as we continue the conversation around the role of education in advancing reconciliation with a panel of policymakers, education professionals, and NGO leaders, for a virtual event titled, “Beyond The Curriculum, Building Hope and Opportunity for Indigenous Youth.” More details, and complimentary registration are available at empireclubofcanada.com. This meeting is now adjourned.

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Canada Needs a Revived Economic Council to Thrive in the 21st Century


25 March, 2022 Canada Needs a Revived Economic Council to Thrive in the 21st Century