The IPL newsletter: Volume 19, Issue 395

Vectors of Digital Transformation

OECD
This report examines key properties – or “vectors” – of the digital transformation that fundamentally affect the economy and society and accordingly the design and efficacy of public policies. It explores three main areas where digital transformation affects the ways the economy and society are operating, i.e.: a) scale, scope and speed; b) ownership, assets and economic value; and c) relationships, markets and ecosystems. Exposing the underlying nature of change, the seven vectors provide insights on how the transformation challenges policies that are frequently predicated on an analogue world of tangible products and assets, fixed geographic boundaries and physical locations, on transaction costs that limit the scale and scope of interactions and offerings, and on supply and demand conditions that reflect scarcity. The objective of this report is to support the review of existing and the design of new policies to ensure that they are well‑suited to the digital era.

Real Journey Time, Real City Size, and the Disappearing Productivity Puzzle

Tom Forth, Productivity Insights Network
A project led by the Open Data Institute in Leeds makes the case that we are mismeasuring the effective size of cities and hence mismeasuring productivity at the local level. Beginning from the observation that larger cities tend to be more productive everywhere except the UK this post asks: is it possible that poor public transport in the UK’s large cities makes their effective size smaller, and thus sacrifices the agglomeration benefits we would expect from their population? The report unpacks this question ODI analyzes real travel time data for Birmingham’s bus network. Their hypothesis is that by relying on buses that get caught in congestion at peak times for public transport, Birmingham sacrifices significant size and thus agglomeration benefits to cities like Lyon, which rely on trams and metros. This is based on calculations that a whole-city tramway system for Birmingham would deliver an effective size roughly equal to the OECD-defined population.

Automation and Artificial Intelligence: How Machines are Affecting People and Places

Mark Muro, Robert Maxim, and Jacob Whiton, Brookings
At first, technologists issued dystopian alarms about the power of automation and artificial intelligence (AI) to destroy jobs. Then came a correction, with a wave of reassurances. Now, the discourse appears to be arriving at a more complicated understanding, suggesting that automation will bring neither apocalypse nor utopia, but instead both benefits and stress alike. Such is the ambiguous and sometimes disembodied nature of the “future of work” discussion. Hence the analysis presented here. Intended to bring often-inscrutable trends down to earth, the following report develops both backward and forward-looking analyses of the impacts of automation over the years 1980 to 2016 and 2016 to 2030 to assess past and upcoming trends as they affect both people and communities in the United States. The report focuses on areas of potential occupational change rather than net employment losses or gains. Special attention is applied to digging beneath national top-line statistics to explore industry, geographical, and demographic variations. Finally, the report concludes by suggesting a comprehensive response framework for national and state-local policymakers.

Advancing Equitable Innovation in Houston: Local Strategies to Support Urban Manufacturing and Inclusive Growth

Urban Manufacturing Alliance
Manufacturing is thriving in Houston. From energy-related manufacturing to small-scale production and making, Houston’s manufacturers are harnessing the city’s innovation, technology, and educational resources to develop new products and businesses. Manufacturing also creates critical opportunities for inclusive economic growth. Houston’s manufacturing sector provides accessible career pathways for job seekers and entrepreneurs from diverse backgrounds. Further, small, urban manufacturers (SUMs) can bring much-needed economic activity and jobs to communities. However, SUMs face unique growth challenges, including lack of affordable production space, business development incentives, and workforce development support. These issues will require creative, multi-stakeholder solutions. In 2018, TXRX Labs and other local organizations convened the Equitable Innovation Conference to discuss potential solutions, and this white paper is a result of those discussions. It provides insight into local challenges and opportunities for SUMs and offers potential strategies – illustrated through local assets to build upon and national best practices to learn from – to grow Houston’s urban manufacturing sector.

A Digital Strategy for Canada: The Current Challenge

David A. Wolfe, IRPP
Canada’s future competitiveness and growth prospects are inextricably linked to our ability to seize the opportunities created by the rapidly evolving digital economy. Ottawa’s innovation agenda should be extended to pursue a broader digital policy strategy focused on three main goals: (1) promoting the rapid adoption and diffusion of digital technologies across all sectors of the economy; (2) assisting companies that have demonstrated commercial potential to grow to a global scale; and (3) promoting the creation of businesses capable of developing disruptive technologies. Ultimately, given the pace of change and the complexity of the challenges involved, the most effective way for governments to respond is through continuous innovation in their policy and regulatory frameworks.

Canadian challenges and the role of policy

Research for the CDO program has shown, however, that Canadian business has been slow to recognize the extent to which software advances are transforming traditional industries. As a result, many Canadian firms are underinvesting in software and lagging in the introduction of corresponding digital processes and techniques to access markets. Moreover, critical sectors of the economy have been slow to adapt to the challenge posed by dynamic platform firms, and are struggling to respond to the ensuing disruption.

These problems are compounded by other obstacles that hamper Canada’s ability to take full advantage of the digital revolution.

• Canada’s record in building local successes into global powerhouses is decidedly mixed. Promising startups all too often end up either moving to the United States or sold to foreign (usually US) investors. Without high-growth companies of global scale, Canada will lack the training ground for managers with the skills needed to shepherd startups into successful scale-ups.
• One of the biggest challenges to the growth of digital firms is the shortage of Canadian-based patient capital for high-growth companies. Promoters of digital technologies emphasize their ventures’ strong growth prospects, but the reality is that high growth usually implies greater risk, which is a deterrent to traditional sources of investment in Canadian capital markets.
• A related issue is the relative size of Canada’s domestic market. Companies must export at an early stage as a base for global success. The shortage of patient capital and the lack of key experienced managers with the skills required to scale a domestic company into global markets make it difficult to transform startups into high-growth firms.
• Competing successfully in the global economy increasingly depends on the ability to use intellectual property and propriety standards as part of a competitive strategy to create what is called “room to operate.” Canadian innovation strategies need to pay greater attention to these critical elements of success in the digital economy.
• Canada has a loose innovation system. The National Research Council’s Industrial Research Assistance Program (IRAP), the Scientific Research and Experimental Development Tax Incentive Program and other programs provide some support for research and development (R&D) initiatives in advanced technologies and software. However, the system lacks a coherent and strategic focus, and key players, including businesses, research and training institutions, industry associations and government, are not coordinated.^[8]
• Despite a significant concentration of digital firms in particular cities and regions, much more could be done to further develop these emerging clusters or regional innovation ecosystems and generate greater benefits.

Software and data thus are the key to Canada’s success in the digital economy. The overarching challenge, however, is to recognize that a small, open trading economy such as Canada’s must focus on specific sectors and niches where Canadian firms and industries have the potential to compete in global markets. The reality is that, although Canadian entrepreneurs have developed exciting ideas and started innovative businesses, they lack the focused support they need from government to expand these ventures on a global scale.

Canada’s ability to position itself as a leader in the ever-changing and expanding digital economy will depend on how effectively governments and policy-makers support Canadian firms in navigating these fast-developing challenges. The strategy must have three main goals:

• to promote the rapid adoption and diffusion of digital technologies across all sectors of the economy;
• to assist companies that have demonstrated their commercial potential to grow to a scale that helps them succeed in the global marketplace; and
• to support the emergence and growth of firms that could bring new, disruptive products and services to global markets.

Please forward this newsletter to anyone you think will find it of value. We look forward to collaborating with you on this initiative. If you would like to comment on, or contribute to, the content, subscribe or unsubscribe, please contact us at ipl.munkschool@utoronto.ca.

This newsletter is prepared by Jen Nelles.
Project manager is David A. Wolfe