Thank you very much, Chair and honourable members. Thank you very much for the opportunity to present today.
I am a senior fellow with CIGI, where I write on the digital economy and innovation.
I want to make several remarks, largely in connection to how well the reforms of the Investment Canada Act respond to the digital transformation.
The first comment is that in the innovation economy, when a company wants to require a new capability, it acquires a company that has successfully mastered that particular function and then it absorbs it. The significance of the company may not be its market cap but its role in the ecosystem of innovation, how that amplifies or expands the company's own palette of products and capabilities and how that technology that it acquires combines with others to produce world-class applications. What matters in the innovation economy is not the size threshold so much as the connectedness threshold. I don't see that concept in the present construction of the reforms.
The second point is that the act is premised on the ability to designate prescribed sectors. The words “supply chain” or “value chain” do not appear, as far as I can tell, in the act; however, the geopolitical background or battleground in the technology war today is not in sectors but in supply chains. Economic security today is based on capture of the valuable parts of value chains.
Some of you may be familiar with the smile curve of innovation, where basically the value capture where you have lots of value is at the initial stage of the production process, which, in the data-driven and knowledge-based economy, is with capturing patents, intellectual property and data. Then it's in the market end where you have branding. In the middle part of the curve, which is the low-value capture part, that's where you do the data processing, the development of processes and so forth. That is where we are now concentrated in Canada. We are not capturing the high ends of the value chain.
The question for us as we move forward in framing an Investment Canada Act that is going to work for Canada is how to capture the high ends of that curve. I don't see that either in the act right now.
My third point is that data is the essential capital asset of the modern, knowledge-based and data-driven economy. It's value is Protean and depends on the application. What's valuable to one person may not be valuable to another. This is one of the least well-understood areas of valuation of the market economy.
Back in the 1990s, Robert Solow famously said that the computer revolution is everywhere but in the economic statistics. Today, data is everywhere but in economic and trade statistics. We're not seeing it, but we know that it is very powerful and very important. A company may be otherwise valueless. Its market cap may be minimal, but the data that it possesses may be extraordinarily valuable. From a national security concern, that may be of great concern to Canada. It's not easy to see how the Investment Canada Act captures this particular reality.
The fourth point is that the draft act is based on whether an entity has a place of operations, employees or assets in Canada. Prior to the digital transformation, the combination of export controls and investment screening effectively covered the waterfront to safeguard our national security concerns with regard to the way the economy functions; however, with the digital transformation, it is now possible for companies to operate in Canada on a virtual basis. This distinction is recognized in the OECD/G20 inclusive framework, whereby we have agreed on how to tax the operations of foreign multinationals that are operating with significant presence in Canada but on a virtual basis.
Those companies may be capturing data and may be influencing our society just as much on a virtual basis as any company with a physical presence here, yet there is no way to screen that presence at the moment.
If we were to generalize what we are doing today with the Investment Canada Act, we would be talking about an “operations in Canada act”. One part of that act would be the physical operations that we call investment. Another part of it would be the virtual presence. We don't have that distinction yet, so we are not responding adequately yet to the digital transformation.
Another part of it would be the virtual presence. We don't have that distinction yet, so we are not responding adequately yet to the digital transformation.
The fifth and final point is that, in my view, the greatest threat to our national security at the moment is data-driven, micro-targeted personal messaging that drives divisiveness. The technical notes to GPT-4, the most powerful large-language model recently released by OpenAI, comments on how easy it is to get factions to hate each other. It's very easy also to tweak an algorithm from “do no harm” to “maximize harm”. This has been proven in trials.
The question is how we actually address that. The Investment Canada Act has a section that deals with cultural industries. Our culture is being transformed by the presence of this inflow of information and disinformation, without any referendum on how to actually manage this.
I would say that our cultural institutions are in the attention business, and our existing ones are not competing well. We don't have a way right now to deal with that, and while the Investment Canada Act purports to address this issue, it does not.
I will leave it there.