Madam Chair and honourable members, thank you for the opportunity to present today. I am Jim Balsillie, chair of the Council of Canadian Innovators.
I welcome the committee’s study on the Investment Canada Act, because it’s a critical regulatory tool for ensuring Canada’s prosperity and security. In the modern knowledge-based and data-driven economy, the sources of prosperity and the vectors of risk have changed. The act must therefore change as well to ensure it remains fit for purpose.
Specifically, first, the understanding of foreign direct investment that informs the construction of the act is based on investment in tangible production. It does not reflect the contemporary economy where the most valuable national economic and security assets are intellectual property and data.
Second, the act is based on the premise that, with FDI, the direction of the flow of knowledge and technology is into Canada. This used to be the case with FDI into industrial production. It is not the case with FDI into the innovation economy where FDI is extractive.
Third, the concept of net benefit or risk could be reasonably applied in the industrial economy based on the size of the acquired business assets. In the knowledge-based and data-driven economy, prosperity and risk do not scale with size but with spillovers.
Canadian policy remains firmly grounded in industrial-era concepts, failing to develop national strategies for IP or for data. Companies and countries now compete by owning and controlling intangible assets. The EU is building its own cloud not because Europeans lack faith in the multilateral trading system, but because EU policy-makers understand that whoever owns the IP and whoever controls the data, controls who and what interacts with it, and this has major implications for their prosperity, security and democracy.
Canada is on the sidelines in the global competition for IP and data, contributing to their creation but not contesting their ownership and ensuing benefits. Consequently, we see the exfiltration of knowledge assets out of Canada on a regular basis, across borders with the stroke of a pen, currently without any national security or economic review. For example, foundational IP for AI that Canadian taxpayers have funded for two decades is transferred from the University of Toronto to Google. Also, Huawei creates 17 research partnerships with Canadian universities for equally valuable telecom infrastructure. There are many other examples.
Meanwhile, smart countries such as Germany with its 72 Fraunhofer institutes has one central exploitation department that administers and manages IP applications, exploitations and contracts on an expert basis. Germany, the U.K., the U.S., France and even the EU created updated FDI strategies while Canada has not. Germany went as far as blocking the hiring of one of its computer engineers, a recognition by policy-makers that the negative spillovers for Germany outweigh the private returns of the computer engineer.
IP and data have strong public good characteristics, so private decisions do not price the associated externalities or spillovers into their contractual agreements.
Three aspects of the current ICA study are particularly noteworthy as inappropriate for today’s economy: one, the valuation thresholds; two, a moratorium narrowly focused on acquisitions from state-owned enterprises of authoritarian countries; and three, a principal economic focus on jobs. Very few strategic transactions would require review based on these criteria and they don’t guide the attention of policy-makers administering the act to the issues relevant in the contemporary economy.
The focus on acquisitions from SOEs of authoritarian countries is insufficient, because if the assets are critical to Canada’s prosperity, security and sovereignty, then we need to ensure they remain in our control regardless of the foreign counterparty.
Finally, there are many other economic consequences beyond jobs that must be considered, especially since the key skills for the IP and data-driven economy are in short supply. Instead, we need to ask the following questions: Where does the value proposition in our economy lie; how is the value we generate connected to our prosperity and security; and is the act structured to guide an informed assessment of a given investment into the innovation, knowledge-based and data-driven economy?
Our current approach to dealing with Canada's most valuable economic and national security assets is akin to putting an additional bolt lock on the front door, while advertising that our screen door on the side is open.
In my attached appendix, I proposed an updated analytical framework for the ICA.
I thank you.