North America is out of touch with 'Ideas Economy'

The Canadian government's March 29 budget will be Ottawa's latest crack at boosting the country's middling record on innovation.

Prime Minister Stephen Harper has indicated he wants a better return on the $7-billion that Ottawa spends to support research and development, and is expected to revamp the business tax credits that make up most of that funding, so they're aimed at R&D that leads to successful products.

Finance Department officials might be wise to look to innovation guru Vijay Vaitheeswaran, a globe-trotting writer for The Economist, for insight on what works, what doesn't and why. Mr. Vaitheeswaran is in Toronto next week to promote his new book Need, Speed and Greed: How the New Rules of Innovation Can transform Businesses, Propel Nations to Greatness, and Tame the World's Most Wicked Problems, including a stop at the Munk Centre March 19.

The Globe's Jeremy Torobin caught up with Mr. Vaitheeswaran Tuesday just after his book was released. Here is an edited transcript of their conversation:

JT: I was struck by your fairly simple definition of innovation, as 'fresh thinking that creates market value.' It seems so obvious, yet countries with millions of really smart people and a lot at stake in finding ways to innovate have problems doing so.

VV: Everyone agrees they're in favour of innovation, and yet we mean different things and part of the problem is it can be used as a cloak to justify all manner of unproductive, or even distorting and frivolous, investments. That's a big reason why a lot of economies, especially developed economies that have proud economic achievements, scientific prowess and money to invest, have trouble with this. That's part of what animated me. People in the middle class are feeling left behind by an innovation revolution that's helping the very poorest on Earth - with mobile phones, micro-banking and so on - and which is helping the very great elites. But we're increasingly out of touch with the 'Ideas Economy' in North America, and how to capture that was one of the animating factors for me in writing the book.

JT: Policy makers in Canada say businesses need to invest more on innovation and productivity. Businesses, meanwhile, say government should provide more incentives for them to innovate. Does needing an incentive kind of miss the point?

VV: Innovation is the only reason we don't still live in the Stone Age, or why life today is better than it was 200 years ago. Think of the age of invention, the great Victorian era 120 years ago, which produced a lot of the breakthrough that led the foundation for the 20th century - electricity, the motor car, modern chemistry and so on. Providing incentives, such as the patent system, provided great impetus for all of what made modern life possible. So I think we do need incentives, and we actually need more incentives for socially useful innovation. The 'greed' part of my title is not about voraciousness, it's about using incentives to harness the power of self-interest. In terms of money and profit, yes, but also more broadly, when we talk about social entrepreneurs, things like purpose, community, social goods are also motivations. So I want to harness the desire of entrepreneurs and innovators in companies and organizations, and give them ample rewards - more than we do now - but for innovation that tackles socially difficult problems. Where I think you're right, though, is in sniffing out corporate welfare, companies wanting more government money to invest. The biggest prize of all is market success, right? Come up with products that sell well, and you don't need subsidies.

JT: High-risk loans and venture capital for startups are severely lacking here, which impairs companies' commitment to innovation, according to a recent report by the Conference Board of Canada. How can countries ensure this is not the case?

VV: A willingness to embrace failure is a cultural value, as it is expressed through political, regulatory and legal norms. The old joke is entrepreneurs have to rely on friends, families and fools, because banks often don't want to talk to you. In Canada, conservative traditions and tough regulations held the country in good stead during the crisis, but in the area of startup capital, you need to learn from some of the more innovative economies. You could look at Israel, Taiwan, parts of the Indian venture capital community in Bangalore, and in China there's a wonderful community of so-called sea turtles, the Chinese that have gone back from overseas experiences and are now funding a lot of the startup work in Shanghai and Shenzhen.

JT: Does the plodding global recovery suggest that innovation-friendly steps like reducing protectionism or increasing labour mobility are harder to achieve? Aren't governments everywhere showing they'll err on the side of national self-interest?

VV: One of the great risks is of a trade war, because when economies turn down it is too tempting to point the finger at the other guy, rather than take difficult decisions at home. I worry, for example, about the 'blame China brigade,' which is still quite vocal, especially among politicians. A lot of problems that we have in North America are home-grown, and blaming a rising power like China is very tempting but in fact, most of the solutions to what ails North American economies can be found here.

JT: Are there any other key points of your book that you would stress?

VV: I think there is a real problem with the education systems that are prevalent in OECD countries. Canada is no exception to this argument. They were developed at a time when they were training people for the industrial model of production, so we tend to have one-size-fits-all schools, and the mode of education is fundamentally the 'tiger mom' mentality. Look at the debate that started about why China is eating everybody's lunch, it was discipline over play, deference to authority over dissent, memorization and standardization over creativity. I think that's exactly the wrong way to think about education. Every increase in value added in Canada will come from the Ideas Economy, and if you're going to have an educational system that's suited to that and prepares people, you have to train original thinkers, people who are willing to challenge authority, not follow hierarchy or teach to the test. Memorization, harmonization, standardization; these make an easier job for educational bureaucrats and teachers, but what we need to do is teach our children, and teach ourselves throughout our careers, to keep re-learning how to learn.