Improving Canada's Digital Advantage

Summary

Certified Management Accountants of Canada (CMA Canada) believes that the primary role of governments in Canada in building a successful digital economy is to serve as an enabler, preparing the ground for creativity to take root. This means establishing a sound economic policy framework, including fiscal policy, competition laws, investment policy, infrastructure investments, and intellectual property rules, which are fundamental to success in a global digital economy. With the appropriate policy, legal and regulatory framework in place, it is then primarily up to the business community, NGOs and private citizens to innovate, albeit sometimes in partnership with government.

While Canada's economic policy framework is generally sound, there are some key areas that would aid in the further development of our country's competitive digital economy. The Government of Canada, in collaboration with the private sector, can and should build upon Canada's digital advantage with initiatives to:

1. Prepare Canadians with appropriate education and skills training, including making selected investments in post–secondary education designed to boost the creative capacity of students entering the business community.
2. Bridge the digital divide to expand the geographic reach of Canada's digital economy and create opportunities for more Canadians to participate by investing in literacy, numeracy and problem–solving skills development.
3. Promote investment in innovative research and development by extending the refundability provision of the SR&ED tax credit.
4. Encourage the growth of a robust domestic venture capital market to support our innovators.
5. Leverage public sector procurement in collaboration with others.
6. Demonstrate its commitment to success in a digital world by launching showcase projects that have identifiable benefits for its citizens.

Submission

INTRODUCTION

Certified Management Accountants of Canada (CMA Canada) is pleased to participate in the Government of Canada's consultations on a digital economy strategy. Technology and its applications in business and community activities changes rapidly. Rather than trying to keep up with the latest technological advances, the focus should be on ensuring framework policies are in place so that Canadians can use technological innovations creatively. It is timely, therefore, for the Government of Canada to seek input on the best ways for businesses, consumers, citizens and governments to realize the economic and social benefits of a digital economy.

CMA Canada has consistently advocated public policies aimed at stimulating the growth of productivity, the essential components of which are well documented — human capital, physical capital and innovation. Digital content enabled by information and communications technologies (ICT) is critical to unleashing innovation, or what we call creativity. We focus on creativity because it represents the extraction of value from the other two components of productivity — human and physical capital — through inventiveness.

We urge the federal government to take a long–term view of Canada's place in a digital world. While the government is currently running a significant deficit and Budget 2010 announced austerity measures for the years ahead, such fiscal constraints tend to be cyclical. The focus should be on long–term strategic outcomes that will benefit Canadians.

WHO WE ARE AND WHAT WE DO

Certified Management Accountants (CMAs) are strategic management accounting® professionals who combine accounting expertise and business acumen with professional management skills to provide leadership, innovation and an integrating perspective to organizational decision making. They apply contemporary and emerging best management practices in a wide array of business functions, including strategic planning, sales and marketing, information technology, human resources, finance, and operations. CMAs bring a strong market focus to strategic management accounting and resource deployment, synthesizing and analyzing financial and non–financial information to identify new market opportunities, ensure corporate accountability, and help organizations maintain a competitive advantage.

CMA Canada has more than 50,000 members ranging from senior level managers in the public and private sectors, to sole practitioners operating as consultants and auditors. CMAs know from their training and experience that business investment in technology and digital content alone is not enough to unlock private sector creativity. Creative business strategies, including the organization of work, improved business models, and the efficient deployment of technology, are as critical to innovation as investing in ICT and digital content.

The vital importance of management practices and business functions was confirmed by the Council of Canadian Academies in its April 2009 report Innovation and Business Strategy: Why Canada Falls Short. The Council found that the innovation performance of Canadian business fell significantly short of that of their U.S. counterparts and was weaker than many peers among OECD countries. The Council concluded that this "… poor performance in respect of innovation is due to the prevalence of business strategies that do not emphasize innovation as a key competitive tool."¹ CMA Canada is committed to training strategic management accounting professionals to understand and apply innovative business models and strategies in their work environments in the private and public sectors.

THE ROLE OF GOVERNMENT IN BUILDING A DIGITAL ECONOMY

CMA Canada believes that the primary role of governments in Canada in building a successful digital economy is to serve as an enabler, preparing the ground for creativity to take root. This means establishing a sound economic policy framework, including fiscal policy, competition laws, investment policy, infrastructure investments, and intellectual property rules, which are fundamental to success in a global digital economy. With the appropriate policy, legal and regulatory framework in place, it is then primarily up to the business community, NGOs and private citizens to innovate, albeit sometimes in partnership with government. From time to time, it may also be necessary for government to play a role in filling gaps that may be left by the market, protecting consumers and addressing social inequities.

While Canada's economic policy framework is generally sound, there are some key areas that would further develop our country's competitive digital economy. Key issues fall into the following categories:

1. Education and Skills Training
2. Bridging the Digital Divide
3. Investment in Research and Development
4. Venture Capital
5. Procurement Policy
6. Demonstrations of Government Leadership

A. Education and Skills Training

Very few investments provide the economic benefits that education does — OECD estimates suggest that adding one year to the average educational attainment in a country can increase GDP per capita by 5 per cent.² Education and training is a core requirement of a digital economy — competitive organizations have skilled people.

In particular, building a successful digital economy will depend increasingly on individuals with skills in the so–called STEM disciplines — science, technology, engineering and math.

CMA Canada was pleased to see the government's recent announcement of the Banting Postdoctoral Fellowships. This new $45 million investment over five years should attract and retain some of the best researchers in the world. In addition to this program and the current Vanier Canada Graduate Scholarships, CMA Canada encourages the Government of Canada, either on its own or in partnership with provincial governments, to make selected investments in post–secondary education designed to boost the creative capacity of students entering the business community. There is merit in promoting greater interaction between the business community and universities and colleges. Initiatives could include:

• Some post–secondary institutions have launched successful co–op education programs; grants or tax incentives would encourage more companies to participate in creating co–op and internship opportunities.
• Fellowship programs providing work experience and scholarships to students at the undergraduate, graduate and post–doctoral levels, with a particular focus on STEM disciplines.
• Grants or tax incentives permitting university and college faculty to spend up to one year in an industry position, thereby increasing business/academe collaboration.
• In collaboration with STEM industries, marketing campaigns aimed at informing students how to pursue STEM–based careers as well as the availability of STEM jobs in Canada.

B. Bridging the Digital Divide

Government must play a central role in bridging the digital divide that is a natural consequence of Canada's big geography and dispersed population. Historically, the Government of Canada has played a major role in establishing Canada as one of the world's leaders in Internet connectivity. Early recognition of the importance of connectivity and investment in the infrastructure required to connect Canadians to the digital world was a vital contribution by the federal government. This record is impressive when one considers Canada's geographic dimensions and climatic challenges.

We cannot rest on our laurels. More and more Canadians are accessing the Internet, and the volume of online content is staggering compared to what it was when the initial digital infrastructure was built. Speed is critical to success.

Access to high–speed Internet and mobile telecommunications services is critical to deepening Canada's digital economy advantage. More Canadians must have the digital tools at hand to facilitate innovation, commerce, skills development and social interaction.

The 2009 Budget investment of $225 million over three years to expand broadband infrastructure in rural and remote communities, in collaboration with the private sector, is welcomed. A number of funding agreements with private sector partners to expand broadband Internet access have recently been announced. CMA Canada is pleased to note that several of the new private sector partners are Aboriginal organizations, ensuring that opportunities to participate more fully in the digital economy are becoming available to Canada's youngest and fastest growing demographic. We encourage the Government of Canada to focus more attention on developing the digital economy talents of Aboriginal Canadians.

As the government's consultation paper notes, the digital divide is about more than bridging the gaps in broadband coverage across Canada's land mass. Digital skills development is essential to the successful deployment and use of digital information and opportunity. Productivity can be improved by bringing the low–productivity segment of the workforce closer to the median.³ This requires a focus on literacy and numeracy skills.

As many as forty per cent of working Canadians lack the basic literacy skills needed to participate in a knowledge economy.⁴ Addressing this gap can have considerable positive consequences. A 2005 C.D. Howe Institute report found that "… a 1 per cent increase in the literacy measure in a country will generate in the long run an increase in labour productivity above 2 per cent."⁵ The relationship between human capital and productivity is robust; poor literacy skills act as a drag on the growth of a digital skills economy. Basic and intermediate numeracy skills, as well as problem–solving skills, are also essential to success in a digitized world. Therefore, CMA Canada recommends that the Government of Canada invest, either directly or in partnership with provincial and territorial governments, as well as in collaboration with private sector partners, in literacy, numeracy and problem–solving skills programs.

C. Investment in Research and Development

A key public policy tool encouraging investment in innovation is the Scientific Research and Experimental Development Tax Credit (SR&ED). It is the most significant support mechanism in Canada for business–generated research and development. The SR&ED tax credit is well–known by, and is generally popular with, the Canadian business community.

We are pleased the federal government has announced a comprehensive review of all support it provides for research and development to ensure it contributes to innovation and business opportunities. CMA Canada believes there is room for further enhancement of this program.

One option for consideration is to extend the refundability provision of the SR&ED tax credit currently available only to smaller businesses to claimants of all sizes. As an alternative, the government could permit larger claimants to apply the tax credit against other federal government levies such as EI premiums. Claimants would be permitted to use their accumulated but unused tax credits first to offset taxes until the pool has been used up. Companies would thereby be able to draw down their existing pools of earned but unclaimed credits over time, with minimal impact on the federal government's treasury.

D. Venture Capital

CMA Canada agrees with the government's view set out in its consultation paper that venture capital financing is "crucial to the ability of promising ICT companies to innovate, commercialize technologies and fulfill their growth potential."⁶ The Government of Canada demonstrated its commitment to this position in recent budgets by investing considerable sums in the Business Development Bank to encourage venture capital investment in Canadian–based technology companies.

While such investments have a role to play in expanding Canada's venture capital market, we agree with the view expressed by the federal government's Competition Review Policy Panel that market forces should be allowed to determine successful outcomes.⁷ Investors who choose to put their capital at risk should make capital allocation decisions, with the role of government being "to enhance returns to the level necessary to attract sufficient capital to this activity through, for example, the tax system."⁸ Consideration should be given to how the tax system can be used to leverage greater venture capital financing.

In addition to leveraging the tax system to build a more robust domestic venture capital market, consideration should be given to programs that would encourage both Canadian expatriates and foreign investors with expertise in VC financing to come to Canada to share their experience and mentor Canadian investors. In the case of foreign investors with venture capital expertise, this could be done through the immigration system.

E. Procurement Policy

Government procurement policy can be a powerful tool to promote private sector investment in innovation and the adoption of ICT, including small and medium enterprises (SMEs). As noted by the Information Technology Association of Canada (ITAC) in its recent paper entitled Leveraging ICT Adoption: What Can Work for Business?, government can stimulate private sector investment and creativity by contracting out research and procuring innovative goods and services.⁹

Such direct procurement practices are well known. In fact, in 2007 the European Commission published a guide of best practices for including innovation in government tenders.

In addition to directly procuring goods and services relating to the digital economy, two other forms of public procurement can encourage ICT adoption and stimulate creativity. ITAC describes them as "catalytic procurement" and "collaborative procurement". The former occurs when innovative products or services acquired by government are used exclusively by private end users. Government serves as the initial buyer, with companies and individuals then having the opportunity to purchase the goods or services. The latter takes place when the public and private sectors purchase goods or services jointly. Government demand can be the launching pad for an innovative product or service, with the public sector serving as the lead adopter. As is the case in France, collaborative procurement can be of particular assistance to SMEs adopting technology and reaching their growth potential.¹⁰

To date, Canada has not been a leader in leveraging public sector procurement to broaden and deepen Canada's digital economy. The time has come to lead. A more collaborative approach to government procurement deserves promotion and commitment.

F. Demonstrations of Government Leadership

As evidenced by the foregoing, the Government of Canada has an essential role to play in promoting and building Canada's digital economy advantage. The ideas discussed above, however, relate primarily to the role of government as the builder of digital infrastructure and as the enabler for businesses, communities, and individual citizens to engage more actively and creatively in the digital economy. There is, however, a more direct role for the government to play.

Investments in ICT create opportunities for new forms of collaboration among different levels of government, as well as between government and the private sector, communities and individuals. New collaborative models should be explored with a view to enabling faster decision–making, organizing information in a way that makes it more easily accessible by citizens, and providing greater transparency.

The federal government could assume a leadership role in developing the common standards necessary for new collaborative models to work.

Moreover, one or two demonstration projects led by the federal government could showcase the government's commitment to the digital economy. While several such projects may come to mind, CMA Canada suggests the following two for consideration:

• MyPage: Canada could follow Norway's lead and institute MyPage as an online, one–stop public service centre. Canadians would have a single, secured point of interaction with government in which they could submit information, have access to their own personal information stored in public registers, and submit online applications and notifications. MyPage could be an adjunct to the online government services already offered to Canadians through Service Canada.
• Digital Democracy: The Government of Canada could develop a system for online voting in federal elections. Permitting citizens to exercise their right to vote from the convenience of their home or from a mobile platform could be particularly helpful as Canada's population ages, with more voters facing challenges in getting out to vote. It could also be a way to encourage young, digitally sophisticated Canadians to vote when they otherwise may not be so inclined.

CONCLUSION

Canada has many advantages as it faces an increasingly competitive, digital global marketplace for ideas, goods and services. The Government of Canada moved quickly out of the starting gate to put broadband infrastructure in place, the critical backbone of a successful digital economy. A framework was established for telecommunications companies to build their infrastructure across the country to help Canadians connect to ideas and be creative. Relative to other G8 countries, Canada's economy survived the recent global economic meltdown in good condition. A fiscal strategy is in place to gradually eliminate the deficit that arose from dealing with the recent recession. Earlier this year, long–awaited amendments to the Copyright Act were introduced in Parliament that will help protect the interests of creative Canadians.

Despite our inherent advantages and successes to date, the world around us continues to change rapidly. Knowledge and creativity are the new engines of a successful economy. Canada must ensure that its citizens are in the vanguard of knowledge and creativity. We have a sound economic framework in place.

The Government of Canada, in collaboration with the private sector, can and should build upon this foundation with initiatives to:

• Prepare Canadians with appropriate education and skills training.
• Bridge the digital divide to expand the geographic reach of Canada's digital economy and create opportunities for more Canadians to participate.
• Promote investment in innovative research and development.
• Encourage the growth of a robust domestic venture capital market to support our innovators.
• Leverage public sector procurement in collaboration with others.
• Demonstrate its commitment to success in a digital world by launching showcase projects that have identifiable benefits for its citizens.

Endnotes

¹ Innovation and Business Strategy: Why Canada Falls Short, Report in Focus, Council of Canadian Academies, April 2009; page 26.

² Canada's Success Is No Accident, And It Isn't A Given, Kevin Lynch, Policy Options, April–May 2006; page 14.

³ From Productivity to Well–Being: Keep the Focus on Basic Skills, Pierre Fortin, International Productivity Monitor, Number 11, Fall 2005.

⁴ Connecting the Dots…Linking Training to Business Outcomes and the Economy, Allan Bailey, Canadian Council on Learning, April 2007; page 6.

⁵ Public Investment in Skills: Are Canadian Governments Doing Enough?, Serge Coulombe and Jean–Francois Tremblay, C.D. Howe Institute Commentary, No. 217, October 2005; page 8.

⁶ Improving Canada's Digital Advantage, Strategies for Sustainable Prosperity: Consultation Paper on a Digital Economy Strategy for Canada. Government of Canada. May 2010; page 21.

⁷ Compete to Win; Competition Review Policy Panel, June 2008; page 75.

⁸ Ibid.

⁹ Leveraging ICT Adoption: What Can Work for Business?, Information Technology Association of Canada, January 2010; page 13.

¹⁰ Ibid., page 15.