Positioning Canada to Lead in a Digital- and Data-driven Economy: Discussion Paper

"Understanding and acting on the economic and social dimensions of digital transformation is increasingly critical as the digital economy becomes the entire economy."Footnote 1

Context

The nature of economies and societies are changing. Waves of technological progress spurred by emerging digital capabilities are quickly becoming the key to success for any industrialized nation, its citizens and companies. In this era of transformation, embracing and leveraging the power of digital technologies and big data matters. It improves our quality of life, and is increasingly the central pillar that will drive productivity, growth and competitiveness.

The pace of this transformation is impressive. According to IBM, 90 percent of the world's data has been created in the last two yearsFootnote 2. McKinsey estimates global e-commerce has increased almost four-fold from US$495 billion in 2005 to US$1.9 trillion in 2016Footnote 3. And artificial intelligence (AI) is expected to contribute as much as US$15.7 trillion to the world economy by 2030Footnote 4 based on PWC projections. The implications are equally significant, changing the way we work, shop, manufacture, learn, and interact. Automation, digital platforms, and other innovations are transforming traditional sectors and creating new ones.  The adoption of new technological platforms is reshaping industries into interconnected ecosystems, lowering barriers to entry, redefining global value chains, and rewriting the rules of competitiveness.

The sheer power of digital and data processing is reshaping nearly all aspects of the global economy. "Changes in scale, scope and speed are the result of converting information into digital bits that can be processed and analysed by computers. This process has become exponentially cheaper and faster over the last 50 years and affects the nature of assets that generate value, how ownership is imparted and where value is generated. In turn, these changes affect the structure and operation of markets, allow the formation of platforms and ecosystems and ultimately affect how relationships – both economic and social – are developed, maintained and located."Footnote 5

This new era of disruption is also redefining the role of the consumer. Today's consumers are more technologically savvy, using digital technologies to their advantage, and in doing so, placing increased pressures on businesses and governments. Consumers are now demanding faster, more reliable products and services.  They demand experiences and are becoming active participants with businesses, accessing real-time information about pricing, product features and competitor services. This has significant impacts on the speed and nature of production, as consumers want timely access to new products, while also demanding insights and value-added improvements from firms. This pushes firms to alter their end-to-end processes and revisit how they lead and participate in global value chainsFootnote 6

At the same time as these technological shifts are remaking the economy, they are also raising real and challenging questions about the organization of our workforce, society, and interactions.  In particular, there are increasing concerns about the level of privacy citizens can enjoy in an ever-more-networked environment, as well as the degree to which new technologies and digital services are predicated on private data that can minimize or amplify bias or discrimination. As noted scholar, Teresa Scassa puts it: "Citizens may be voluntary or involuntary sensors: they generate data through the consumption of services, as well as through their use of popular apps for fitness, route planning, driving or navigation, to give just a few examples… data collection tracks almost every aspect of our digital lives… An insatiable corporate and government appetite for data combined with ubiquitous and unbounded collection drives innovation, yet also creates the potential for risk and harm, ranging from security breaches to discrimination, persecution, and loss of autonomy and dignity."Footnote 7  To fully maximize the opportunity of the technological shifts underway, Canada will need to resolve these questions in ways that work for our diverse and open society, including fostering wide-spread trust, inclusion, and adoption to unleash the full potential of a digital and data-driven economy.

Canada is facing these opportunities and challenges in parallel with other leading nations as part of a global innovation race.  As Canadians, we have key innovation strengths important to our digital transformation. Canada ranks 5th in the OECD in creative thinking and 9th in problem-solving in a technology-rich environment. We have built-up knowledge and technological advantages in areas such as quantum computing, machine learning, blockchain and fintech, AI and autonomous vehicles and aspects of 5G. Yet, important indicators point to a need for concerted action. For example, Canada ranks 20th in the OECD in data specialists, and 24th in ICT graduates as a percentage of all tertiary graduates. Canadian firms are slow adopters of new technology, ranking low on robots per worker (20th in the OECD), and e-commerce (21st in the OECD). Canada's ICT investment per worker is 51 percent of that in the United StatesFootnote 8.

Canada's global competitors are taking aggressive action to lead in big data and the new digital economy.  As an indication of the magnitude of investments, China has announced a US$10 billion national laboratory for Quantum Information Science and a US$47 billion semiconductor fund. The UK's Digital Strategy includes $£400 million for full fibre deployment, while France has announced its 57 billion Euros Big Investment Plan for employment, innovation, and e-government, as well as 1.5 billion Euros planned for AI over the next five years. This is a series of global sprints with a strong focus on digital and data, and Canada will be in fierce competition to assert leadership.

As Canadians, we need to work together if we are to lead and grow our economy in a fast moving digital and data-driven world. The Innovation and Skills Plan, launched in 2017, sets the stage for our way forward. Its goal is to turn Canada into a global innovation leader, and digital transformation is a big part of this.  Canada has strong innovation fundamentals, but we do not fully reap the rewards in the global marketplace. This is our shared challenge.

The Innovation and Skills Plan is built upon an underlying commitment to working in partnership across the Canada's innovation ecosystems. It features new initiatives that challenge all players to better support Canada's innovation and competitiveness outcomes. It recognizes that success requires the full participation of all parts of the Canada's economy and diverse society as we act together to unlock the innovation potential of a digital and data marketplace by enhancing trust, technology adoption, creativity and inclusion.

As we turn to an increasingly digital and data-driven economy and society, these consultations seek to understand how best to position Canada to lead and succeed in this new transformative era which is reshaping our daily realities.  The Government of Canada is seeking your ideas and recommendations in three key areas.

The future of work: Skills for the modern economy

As has already been indicated, the technological and digital transformation underway is changing business models, sectors of the economy, and even the nature of work. As firms are pushed to increasingly automate or digitize their operations, countries are being pressed to ensure they have the right skills initiatives in place to allow workers and firms to respond accordingly. This includes not just assisting those displaced, but also having the right combination of aptitudes, competencies, and experience to be able to drive innovation forward in these emerging areas of the economy. As the Information and Communication Technology Council noted, "generating key talent streams today and equipping them with essential digital skills is one way to not only effectively leverage and weather the disruptions of the digital economy, but rather, to help all Canadians thrive and grow as they take place."Footnote 9

Researchers and analysts have produced a wide range of forecasts and predictions on how new technologies and digital transformation will impact the world of work. The Information Technology and Innovation Foundation has reported that about 20 percent of US jobs are at high risk of automationFootnote 10, and Frey and Osborne found that 46 percent of total US employment is in the high risk categoryFootnote 11. While predictions may vary, we know that digital transformations are disrupting industries, requiring new skills and applying old ones in new ways, and altering how employment is structured, valued, and organized. This raises both challenges and opportunities. Recent work by McKinsey estimates that automation could raise productivity growth on a global basis by as much as 0.8 to 1.4 percent annually.Footnote 12

These increases in productivity are predicated on a workforce capable of fully deploying new technologies, and well-positioned to understand and work with increasingly automated processes. The Brookings Institute notes that about 4 million of the US's 13 million new jobs created since 2010 (30 percent) have required high-level digital skills, with close to two thirds of new jobs requiring either high- or medium-level digital skills.Footnote 13 Similar trends are predicted for Canada. RBC's research shows that more than a quarter of Canadian jobs will be heavily disrupted in the decade ahead, and half will require very different skills than they do now.Footnote 14 While we know that Canada has a world-class education base to draw from, there are also indications that further work will be required to ensure the necessary talent and competencies are available for firms to innovate and grow. This raises important questions related to early skills development, upskilling, and inward talent recruiting.

One part of this must be maintaining Canada's competitive advantage in zones of the digital economy where it is currently leading. This includes building on our world-leading nodes of AI research, and similarly maintaining the excellence Canada has become acclaimed for in quantum computing. At the same time, the shifts in technology are occurring so rapidly, that new spheres and zones are routinely emerging. Solidifying our bench strength, particularly as there are increasingly commercial and industrial applications in areas like AI, must be paired with agile support for emerging areas with significant potential.

At the same time as we develop and deploy the labour market for the digital age, it will be critical to seize on this opportunity to more fully include and leverage the total capabilities available. A digital economy holds the promise of being more inclusive, diverse, and democratized than its preceding modes. Yet, there is work here to be done. In the OECD, women make up 31 percent of all natural sciences engineering, and ICT graduates. This ranges from 43.6 percent in Poland to 18.2 percent in Chile. Out of 30 OECD countries, Canada ranks 15th for the percentage of natural sciences and engineering, and ICT graduates who are women (31.7 percent of the total). Drawing on Indigenous talent will also be critical: 31.4 percent of all Indigenous ICT professional are employed in the ICT sector, although there has been positive growth since the 2008 global recession, with the proportion of Indigenous peoples employed in the digital economy steadily increasing each year.Footnote 15 Ensuring access, adoption, and the full use of talent will be critical to positioning Canada for leadership in the globally-competitive, digital and data-driven economy.

It is clear that understanding the changing nature of work, building on our existing strengths, effectively building up the skill base unique to an increasingly digital and data-driven world, and better leveraging the full talent base on offer will be critical to advancing Canada's digital leadership and global competitiveness.  Success against each of these aims will require concerted efforts by Governments, businesses, academia, civil society, and individual citizens. Identifying clear and practical areas for further work is a key outcome for this consultation.

Key questions for this section include:

Unleashing innovation: Fostering Canadian digital and data leadership

In this digital age, competitive advantages will be defined through the ability to create, commercialize adopt and implement digital technologies, while harnessing the full power of increasingly-available data. Studies continue to show that digital adoption and embracing new technology-enabled business practices fuel productivity, economic growth, and international competitiveness. Yet, Canadian firms are slow adopters of new technology, and Canada remains challenged in scaling firms to full potential. This is particularly challenging in an era of increasing global competition for leadership in digital and data-driven domains.

In their seminal paper for the Harvard Business Review, Bhaskar Chakravorti, Ajay Bhalla, and Ravi Shankar Chaturvedi, systematically assess the competitiveness of 60 countries in a digital and data-driven economic environment. Canada was seen as enjoying a "high state of digital advancement while exhibiting slowing momentum."  The paper concluded that countries like Canada should look to emerging digital economies for lessons in sustaining innovation-led growth, while also putting their "maturity, scale and network effects to use to reinvent themselves and grow."Footnote 16

Clearly, there is scope to further unlock value in a series of new technology areas. The possibilities are immense and game changing.  Artificial intelligence has the potential to transform every sector and how firms do business.  Technologies like additive manufacturing, quantum computing and devices, advanced sensors, and new materials are transforming everything from agriculture and mining to medical devices and computing equipment.

Technology has the potential to create the next generation of globally competitive companies and the good-quality jobs of the future.  Embracing this opportunity will require a focus on developing emerging fields and commercializing new technologies and platforms that have the potential to drive innovation across all sectors of the economy. Canadian businesses need to pay more attention to their innovation and IP strategies to ensure greater commercial success within Canada.  They need to consider how they operate within their local and national innovation ecosystems, and the extent of their reach as leaders or participants within regional and global supply chains.  They need to know more about their current and potential competitors, and where are consumers leaning. As indicated in the graphic below, the uptake on these new digital opportunities has not been even within and across major jurisdictions.Footnote 17

Progress in Capturing Value from Data and Analytics Has Been Uneven

Description of Progress in Capturing Value from Data and Analytics Has Been Uneven

There are five key areas on the left side of the graphic. Beside each key area is a circular line graph with the title Percentage of Value Captured, and beside that is additional text with the title Major Barriers.

The first key area is Location-based Data. The percentage of value captured is 50 to 60 percent and the major barrier is penetration of GPS-enabled smartphones globally.

The second key area is US retail. This area has a footnote which says, similar observations hold true for EU retail sector. The percentage of value captured is 30 to 40 percent and the major barriers are lack of analytical talent and siloed data within companies.

The third key area is Manufacturing. This area has a footnote which says, manufacturing levers are divided by functional application. The percentage of value captured is 20 to 30 percent and the major barriers are siloed data in legacy IT systems and leadership skeptical of impact.

The fourth key area is EU Public Sector. This area has a footnote which says, similar observations hold true for other high-income-country governments. The percentage of value captured is 10 to 20 percent and the major barriers are lack of analytical talent and siloed data within different agencies.

The fifth key area is US Healthcare. The percentage of value captured is 10 to 20 percent and the major barriers are the need to demonstrate clinical utility to gain acceptance and interoperability and data sharing.

Source: Expert Interviews, Mckinsey Global Institute analysis

Positioning Canada not just to participate, but to lead in the digital and data revolution will require thoughtful action – the right infrastructure, the right bets, and supporting Canadian firms to grow and scale-up quickly. Understanding who and how to take the necessary next steps to unleash this innovation is a critical outcome for this consultation.

Key questions for this section include:

Trust and privacy: Rules to enable trust and adoption

In an era driven by transformational technologies and data, growing a strong economy and open society requires a balance between supporting innovation, safeguarding privacy and maintaining consumer trust.  We need to ensure that we have modern frameworks and regulations that allow for experimentation, transparency, and competition, while safeguarding the rights of Canadians and our diversity.  As Chakravorti, Bhalla and Chaturvedi noted in a recent article in the Harvard Business Review, "our digital evolution and our productive use of new technologies rests on how well we can build digital trust."Footnote 18 Said another way, fully maximizing the innovation potential of digital and data technologies will require a high level of trust, creativity, adoption and inclusion. 

It is clear that new technologies and the vast creation of new data are generating new questions about the degree of autonomy, control, and oversight required to ensure continued consumer and citizen confidence in the marketplace and in society. In particular, many commentators and citizens are questioning the continued responsiveness of privacy laws, and our consumer protections in the wake of the online environment and ubiquitous data generations, consumption and use which are challenging previous notions of privacy and consent.

The Government of Canada has taken note of this, in particular by introducing new data breach regulations as a part of the Personal Information Protection and Electronic Documents Act (PIPEDA), which will require firms to more rapidly and consistently inform users in the advent of a loss of personal information.

While an important response to this evolving environment, there are researchers who have indicated that the entire paradigm of our legislative approach needs to shift. As Teresa Scassa notes, "The current regime has yet to fully adapt to data as a resource. And laws designed to protect individuals from exploitation are framed around what were once distinct and siloed issues."Footnote 19 While PIPEDA and other marketplace frameworks continue to provide important protections, particularly as they were situated as technologically neutral in orientation, there remain important questions about how to ensure these frameworks have the appropriate approach to maintain the trust of citizens in an increasingly data-fuelled world.

As Michael Geist noted in a recent article for the Centre for International Governance Innovation, "While there may be benefits for privacy, security and innovation policies from greater control over data, the issue is complicated by the competing policy goal of support for open networks and the free flow of data, which may fuel innovation and hold the potential to promote pro-democracy reforms."Footnote 20 This necessity for an appropriate balance, namely between ensuring the right flexibility and agility for innovation, while maintaining user buy-in and security, is a key theme for these consultations.

Framework laws are one element that requires revisiting in light of this new digital and data reality. As the economy moves increasingly online, and is increasingly fuelled by the data provided by the users and purchasers of products, fundamental questions arise about appropriate safeguards and competitiveness, including against deceptive marketing, abuse of dominance, and the processing and use of personal information.  It is important to note that the market itself is respondingFootnote 21, and it will be important not to stifle innovation when there are market-based approaches that can continue to preserve and generate confidence and trust. Part of this can be covered in the design of new products and services themselves: "The design of products and solutions within the greater Internet of Things space must necessarily be innovative, useful, and effective, but to subscribe to principles of good design it must also be thorough and detailed, unobtrusive and aesthetic, socially responsible and honest."Footnote 22

While businesses will likely continue to partner with consumers to build trust, it is clear that the 'rules of the road' of framework laws must also do their part. Here it is important to look at modernization to ensure relevance and responsiveness, given the importance of trust and adoption to maximizing innovation outcomes from the new global economic realities.

The challenge goes further as it includes the regulations, benchmarks and standards that may specifically apply to new technologies and approaches. As a recent Mowat Centre report articulated, "Canadian governments can and should undertake a serious and sustained effort to bring their regulatory practices and culture out of the industrial age and into the digital age. Canadian governments have the opportunity to significantly boost innovation in several exciting ways, ranging from a greater embrace of design thinking in their regulatory design processes, to the initiation of programs for enhancing technological capacity within government, to the development of new tools to ensure vigorous competition in digital markets."Footnote 23

It is an intentional and agile approach to legislation and regulation that can assist in unlocking the full potential of the digital and data revolution. Without trust, there is no adoption. Without adoption, there is not a complete approach to uptake and commercialization.  Without full inclusion, the innovation potential is not maximally optimized for Canadians.  It is getting to this balanced outcome that we seek to understand from this consultation, with an aim to providing the necessary confidence and buy-in to unlock the full capacity of Canadian leadership in a digital and data-driven economy. 

Key questions for this section include:

Conclusion

This short paper has laid out key dimensions of the immense opportunity and challenge before us.  There has rarely been a more important time to position Canada for leadership. At the same time, there has never been a time when so many transformations were occurring simultaneously, all of them intersecting and coalescing to upend previous norms, and disrupt the fundamental underpinnings of our economy and society.

The three key elements identified above – the future of work, unleashing innovation, privacy and trust – are related and mutually-reinforcing. Getting the ideas and answers to these questions outlined here are critical. We look forward to your input as we seek to position Canada to succeed and lead in the economy of the future, and compete in the global innovation race.

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