Canada’s Quiet Crisis

Are high resource prices masking an underlying crisis in the Canadian economy? No less of an authority than Denzil Doyle, who many believe could be the most important figure in Canadian technology history, thinks our economy is not nearly diverse enough. We talk to the man who was founding president of Digital Equipment Corporation’s Canadian subsidiary, invested in numerous technology startups as Chairman of Capital Alliance Ventures, and served on the board of Mitel, Gennum, GEAC Computer and Newbridge Networks about Nortel, taxes, the tar sands, and why Canada needs Research in Motion to stay independent.

Cantech Letter interviews Denzil Doyle

Nick Waddell

Denny, one of the things we talk about a lot on Cantech Letter is the idea Canada moving up the value chain, away from being an exporter of natural resources and towards a society that exports intellectual property and technology solutions. There’s some relatively new data out there called the The Global Innovations Index (produced jointly by The Boston Consulting Group, The National Association of Manufacturers, and The Manufacturing Institute). This was first published in 2003, and it ranked the Canadian economy 9th in the world out of 82 countries. The 2009 publication ranks Canada 14th, with a projection to 15th before 2013. Canada is included in a cluster of “Second-tier Innovators” Does it seem to you that we are spinning our tires?

Denzil Doyle:

Well we’ve really done a terrible job of educating our political leaders as to the importance of technology. They don’t really believe that technology can create jobs. They look upon it like amateur sports- we should do just enough to keep people appeased but surely it is not as important as oil and gas and gold. We need to educate our elected officials on how technology can be an instrument of economic diversification. Everyone is preaching doom and gloom for the U.S. these days, but I predict that it is their high tech industries that are going to bail them out – Intel, GE, Apple, IBM are all performing well and they are providing a better choice of jobs than we are in Canada.

NW: How do we educate our policy makers and our politicians?

DD:

I think our trade associations must play an entirely different role than they do at present. They are too quick to jump on government bandwagons like scolding Canadian industry for not doing enough R&D or for not being productive enough. We have low R&D because we have a Canadian industry that does not need much R&D and our productivity appears low because our manufacturing sector is dominated by branch plants that are operating at low levels on the value chain because that is what their foreign owners want them to do. The high paying management jobs are left in the head office. The sales- per- employee is typically lower in Canada than in the head office and our policy makers and politicians equate this to low productivity. If we had more head offices (true head offices) we would have more high paying jobs.
A lower Canadian corporate tax rate would also help because it would encourage transfer pricing that would leave more profits in Canada. Our “productivity” is due to many factors and it is irresponsible to imply that if Canadians would just run a little faster on the tread mill and buy more machinery, all would be well. Our trade associations should tell our politicians that if they want more R&D and more productivity, they will have to completely overhaul Canadian industry.

NW:

In the meantime, GM gets a bailout and Nortel doesn’t, while Nortel has contributed more intellectual property to the country than any other company in our history….

DD:

The fact is our politicians simply don’t understand situations like Nortel. They don’t understand technology so they are fearful of it. Because our politicians aren’t taking a leadership role, many Canadians believe that Nortel was just a bunch of spoiled brats typing away at their computers somewhere. Companies like GM get bailed out because politicians understand automobile manufacturing. Nortel had many problems that the government should have been aware of earlier in the game – like their bad book keeping. The people in government who see corporate books on a regular basis to collect taxes or hand out R&D grants should have smelled an accounting rat well before it came into the public domain. It was the accounting problems that eventually scared the politicians away.

NW: It seems to me that if we could clearly demonstrate the economic payback to the average Canadian, then Canadians would demand that we move up the value chain…

DD:

If I were tasked with selling this to the average Canadian, the first thing I would point out is that the Canadian economy is not nearly diversified enough.. Certainly not as diversified as the U.S. Think about it, does it really make sense that our young people, the people who will inherit this country, have to run off to Fort McMurray to slosh around in the oil patch to make a living? Fifty years ago, they flocked to Kitimat or Elliott Lake – now they are trying to turn Elliott Lake into a retirement community.
No one talks about the brain drain anymore, because the official story is that these problems are past us, but it is largely because we are pumping more money into publicly funded research – particularly the universities. However, there is still a serious youth unemployment problem in Canada. I still meet a lot of MBA’s driving taxis, but the government and trade associations say we have a terrible skills shortage. I don’t believe it.

NW: Isn’t the success of the RIM a living breathing example of this? We really don’t have to speak in abstract terms about how technology can help, we can just point to Waterloo…

DD:

Well exactly, look what they’re doing there. Look at the incredible benefits they have created for everyone. There is plenty of diversification there. Now they have the Perimeter Institute and the whole area has just taken off, and it’s just getting started.

NW: Just a few years ago it might have seemed like hyperbole to call it another Silicon Valley, but it does seem to be going that way. Aside from RIM, Open Text is a big success, you have Dalsa, Descartes, up and comers like SandVine. Now Google and Microsoft are moving in with branch offices. I have even heard rumours that Microsoft may want to acquire RIM…

DD:

Oh god, I hope that doesn’t happen! That would be the worst thing for the area. We really need RIM’s head office to stay in Canada – and all the others, so we can play the head office role that I discussed earlier. And yet you hear academics from time to time saying that a foreign takeover of RIM would be in the best interests of Canada. I am surprised that some trade association hasn’t jumped on that one and run with it. I have no problem with any of the big MNEs coming to Canada, but we badly need some MNEs of our own.

NW: In an interview we did with Jeffrey Crelinsten of the Impact Group about a white paper he did, one of his findings was that Canadian firms can sometimes be too R&D focused, that they don’t involve the customer at an early enough stage. Mr. Crelinsten believes that early customer engagement “improves” technology in the sense that it maximizes the technology’s value to customers who will then more likely pay for the product or service based on the technology. Is this your experience?

DD:

Well I am sympathetic to the work that Jeffrey Crelinsten and Geoff Barber, who co-authored that report, are doing. The fact is it is true that we aren’t as good at commercialization as we could be. A lot of that comes down to the fact that there simply isn’t as much money here- it’s harder to access capital. There are lots of government programs but they are all focused on R&D, So we R&D everything to death. I say in my speeches that Canada will have a high tech industry when we have an investment industry that knows how to build one. And of course, as I said earlier that requires political will and public support.

NW: Speaking of Ottawa, did the breakup of Nortel demoralize the area? Or is the next Terry Matthews ready to emerge there?

DD:

I think Ottawa is ready to come back, I am seeing evidence of it and it’s not just telecommunications companies this time. I’m seeing a lot of environmental deals starting to emerge, for instance. There is a company called Ensyn that is worth watching. It is a rapid pyrolysis company that turns biomass into various liquids – even food flavouring. I think there are a lot of very bright people in the area but I don’t see the equivalent of a Terry Matthews or another Mitel. Ensyn might be it.

NW: Are are still active in looking at smaller companies? Do you find small Canadian techs that excite you?

DD:

That’s really where I still get a lot of satisfaction. I still spend two or three days a week at the office of my company Doyletech, I have been involved with a lot of different small companies in the past while. Right now I am working with a company called TalentMap. It’s a web based service that measures the happiness curve of your employees.(Their level of engagement is how they put it, and the world seems to be ready for it). It’s really cutting edge stuff and I believe the guys who started it can commercialize it quickly and make a lot of money from it. It’s really fun helping to build something like that..