The IPL newsletter: Volume 25, Issue 518

December 16, 2024

News from the IPL

EVENTS

Jan 15 banner Title text Prosperity's Path: A Blueprint for Canada's Future

REGISTER HERE | Online | January 15, 2025 | 5:00PM - 6:30PM

In the fall of 2024 IPL Co-Director Dan Breznitzauthored a special five-part series Prosperity’s Path, published in The Globe and Mail. The series explores the critical factors shaping Canada's prosperity and future economic growth, including pressing issues of innovation ecosystems, global competitiveness, sustainable development, and the role of policy in driving long-term economic success.

To dig deeper and to celebrate his work, Professor Breznitz will join Janice Stein, founding director of the Munk School of Global Affairs & Public Policy in conversation on January 15, 2025. Whether you're an industry leader, policymaker, or someone interested in the future of Canada's economy, you won’t want to miss this exclusive conversation.

Prosperity’s Path, special to the Globe and Mail:

How Canada’s middle class got shafted (Sept. 19, 2024)
How not to run a country: Government ineptitude and Canada’s economic malaise (Sept. 28, 2024)
We don’t need no education: How Canada’s broken university system holds us back (Oct. 4, 2024)
To fix Canada’s economic problems, we need a real strategy (Oct. 12, 2024)
As we build a vision of Canada, let’s make sure it has more Canada in it (Oct. 19, 2024)

Dan Breznitz has been elected as a University Professor of the University of Toronto, and is the Munk Chair of Innovation Studies at the Munk School of Global Affairs and Public Policy with a cross-appointment in the Department of Political Science of the University of Toronto, where he is also the Co-Director of the Innovation Policy Lab and a Senior Fellow of Massey College. In addition, he is a Fellow of the Canadian Institute for Advanced Research (CIFAR) where he co-founded and co-directs the program on Innovation, Equity and the Future of Prosperity.

RESEARCH

The Uneven Heartland: A Look at Household Wealth in the Midwest and Southeast

Ana Hernández Kent, Tom Kemeny, Federal Reserve Bank of St. Louis
This paper is co-authored by IPL Affiliated Faculty member Tom Kemeny. Understanding household wealth trends is important for getting a pulse on the economic health and stability of a community. Wealth can be used to invest in oneself and one’s family, meet future needs, provide access to opportunities, and cushion the impact of unexpected financial shocks. Wealth provides a more complete picture of financial well-being than income alone, but until recently, household wealth estimates have been available at only a national level. Having estimates of local wealth enables communities and organizations to place resources to build financial stability where they are most needed.The authors used the publicly available files from the Geographic Wealth Inequality Database, or GEOWEALTH-US, to look at local wealth estimates. Using those estimates, they found that there are pockets of both prosperity and financial insecurity within communities. High- and low-wealth areas can exist within a few miles. Further, significant and rising wealth inequality exists. This blog post focuses on seven states: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee. All of Arkansas and portions of the other states make up the Eighth Federal Reserve District.

Who gets left behind by left behind places?

Dylan S Connor, Aleksander K Berg, Tom Kemeny, Peter J Kedron, Cambridge Journal of Regions, Economy and Society
This paper is co-authored by IPL Affiliated Faculty member Tom Kemeny. This article documents that children growing up in places left behind by today’s economy experience lower levels of social mobility as adults. Using a longitudinal database that tracks over 20,000 places in the USA from 1980 to 2018, the authors identify two kinds of left behind places: the ‘long-term left behind’ that have struggled over long periods of history; and ‘recently left-behind’ places where conditions have deteriorated. Compared to children of similar baseline household income levels, the authors find that exposure to left behind places is associated with a 4-percentile reduction in adult income rank. Children fare considerably better when exposed to places where conditions are improving. These outcomes vary across prominent social and spatial categories and are compounded when nearby places are also experiencing hardship. Based on these findings, the article argues that left behind places are having ‘scarring effects’ on children that could manifest long into the future, exacerbating the intergenerational challenges faced by low-income households and communities. Improvements in local economic conditions and outmigration to more prosperous places are, therefore, unlikely to be full remedies for the problems created by left behind places.

Sector connectors, specialists and scrappers: How cities use civic capital to compete in high-technology markets

Tijs Creutzberg, Darius Ornston, David Wolfe, Urban Studies
This article is co-authored by IPL Affiliated Faculty member Darius Ornston and IPL Co-director David Wolfe. This article uses three cities in the same Canadian province (Ontario): Toronto, Ottawa and Waterloo, to examine how regions compete in high-technology markets. The authors find that regions use civic capital to leverage new, technological windows of opportunity, but they do so in very different ways. Tracing Toronto’s evolution from a marketing hub for foreign multinationals into a centre for entrepreneurship, the authors illustrate how weak ties and cross-sectoral buzz created a ‘super connector’, scaling high-technology firms in a wide variety of areas. In Ottawa, task-specific cooperation in R&D, education and specialized infrastructure enabled the region to overcome the disadvantages of its small size as a ‘specialist’ in a single, capital-intensive niche, telecommunications equipment. Finally, entrepreneurs in Waterloo eschewed task-specific cooperation for peer-to-peer mentoring. By diffusing generic knowledge about how to circumvent the liabilities of smallness, mentoring networks enabled this ‘scrapper’ city to support smaller start-ups in a broad range of niches.

Editor's Pick

Geoffrey Hinton’s speech at the Nobel Prize banquet, 10 December 2024

The Nobel Prize
The Nobel Prize in Physics 2024 was awarded jointly to John J. Hopfield and Geoffrey E. Hinton "for foundational discoveries and inventions that enable machine learning with artificial neural networks". Geoffrey Hinton is The U of T University Professor emeritus of computer science. Dr. Hinton's 'banquet speech addresses the promise and peril of this new form of artificial intelligence. He notes that machine learning with artificial neural networks "excels at modeling human intuition rather than human reasoning and it will enable us to create highly intelligent and knowledgeable assistants who will increase productivity in almost all industries. If the benefits of the increased productivity can be shared equally it will be a wonderful advance for all humanity." However, Dr. Hinton also warns of the need for policy to address 'short term risks' such as the creation of divisive echo-chambers, authoritarian surveilence, and AI weaponry. He then outlines "a longer term existential threat that will arise when we create digital beings that are more intelligent than ourselves." He outlines the threat as follows: "we have no idea whether we can stay in control. But we now have evidence that if they are created by companies motivated by short-term profits, our safety will not be the top priority. We urgently need research on how to prevent these new beings from wanting to take control. They are no longer science fiction." Also see the video of Geoffrey Hinton delivering his Nobel Prize lecture "Boltzmann Machines" on 8 December 2024 at the Aula Magna, Stockholm University, as well as In photos: Geoffrey Hinton’s Nobel week in Sweden – and at U of T

Cities & Regions

Geographies of Knowledge Sourcing and the Complexity of Knowledge in Multilocational Firms

Anthony Frigon & David L. Rigby, Economic Geography
The rise of the knowledge economy has placed innovation at the center of models of competitive advantage. Access to more valuable forms of knowledge remains contested as the geography of its production is uneven and as some knowledge assets are relatively immobile. Within this fractured knowledge landscape multilocational firms have clear advantages. They can exploit numerous localized pools of knowledge, they can shape the character of knowledge development in different places, and they have some control over who can tap local knowledge assets. Surprisingly, we still have little detailed knowledge of the technologies developed by multilocational firms across the sites where they are active. This article augments the literature on multiunit firms on three fronts. First, it makes use of the rich, technological information in patent data to show that multilocational firms operating research and development (R&D) units across US metropolitan areas produce different kinds of technological knowledge over space. Second, it provides quantitative evidence of geographic knowledge sourcing by linking the technologies produced within the R&D units of these firms to the knowledge stocks generated within the cities where they are located. Third, it reports that as the number of R&D units within multilocational firms increase, so, up to a limit, the complexity of the knowledge those firms generate also increases. The authors show that these complexity gains are linked to the volume of knowledge sourced from local partners and to the integration of knowledge across units of the multilocational firm.

Statistics

The Rise of US Economic Sanctions on China: Analysis of a New PIIE Dataset

Martin Chorzempa, Mary E. Lovely, and Christine Wan
Apprehension over China’s military and economic ambitions has led the United States to rely increasingly on financial sanctions and export controls on Chinese businesses, individuals, government-linked research institutes, and other entities of concern. The US goal is to influence Chinese behavior and protect national security while avoiding direct military confrontation and collateral damage to US and allied commercial and political interests. But the sheer complexity of sanctions and controls deployed by various arms of the US government makes it difficult to account for their magnitude or assess their effectiveness and cost. This Policy Brief introduces a newly constructed dataset to help policymakers and the public understand and analyze this vitally important aspect of US statecraft vis-à-vis China. The research it presents identifies the sectors most affected by the expansion and outlines the commercial and governance challenges they create. The fully documented, searchable, and openly available dataset provides details on Chinese entities subject to US sanctions and export controls as of May 2024.

The Biden-⁠Harris Administration Has Catalyzed $1 Trillion in New U.S. Private Sector Clean Energy, Semiconductor, and Other Advanced Manufacturing Investment

The White House
This post summarizes the Biden Administration's investments through their 'government-enabled, private-sector-led approach' to industrial policy. The recent data release shows that since President Biden and Vice President Harris took office, announcements of private sector investments in clean energy and manufacturing in the United States have now surpassed $1 trillion. Also see the Clean Investment Monitor: Q3 2024 Update, which finds that clean energy and transportation investment in the United States continued its record-setting growth in Q3 of 2024, reaching a new high of $71 billion.

Innovation Policy

How to Prioritize Strategic Projects for Better Net-Zero Industrial Policy

Bentley Allan, Derek Eaton, Heather Exner-Pirot, Travis Southin, The Transition Accelerator & Macdonald-Laurier Institute
How can Canada act more strategically when investing in its future economic competitiveness? While its peers and competitors use sophisticated strategies to claim their place in emerging clean industries, Canada’s approach has been more fragmented. Without an overarching strategy to maximize the economic potential of its investments, it risks ad-hoc decision-making, wasteful spending, and reduced long-term economic opportunities. This report provides that high-level framework, outlining five factors that can help governments choose the projects that are most likely to contribute to sustainable industries and a competitive economy. The brief offers a simple set of questions to determine how a project fits into the broader economic landscape and to ensure investments have the potential to add up to more than the sum of their parts. As a medium-sized economy, Canada cannot and should not attempt to compete with larger rivals for the same potential investments. By asking the right questions and applying this framework, governments will be better able to target sectors where they have a strategic advantage, creating more value for taxpayers and positioning domestic firms for lasting success in the global economy

Canada to drive billions in investments to build domestic AI compute capacity at home

Innovation, Science and Economic Development Canada
This announcement by the Honourable François-Philippe Champagne, Minister of Innovation, Science and Industry, officially launched the Canadian Sovereign AI Compute Strategy. The Strategy will invest up to $2 billion, as previously announced in Budget 2024, to meet three key objectives: Up to $700 million to grow Canadian AI champions by leveraging investments in new or expanded data centres through the AI Compute Challenge that is launching today; up to $1 billion to build transformational public computing infrastructure; up to $300 million to provide affordable access to compute power for small and medium-sized enterprises (SMEs) through the AI Compute Access Fund. Also see this article announcing Cohere as the first recipient of funding through the new Canadian Sovereign AI Compute Strategy.

Industrial Revolutionary: How artificial intelligence will fuel Canadian productivity and prosperity

Peter Nicholson, Public Policy Forum
The potential power of AI and the uncertainty surrounding the course of its development have understandably caused widespread anxiety. Particularly in Canada and other advanced economies, the public discussion has focused far more on the potential risks of AI than on the enormous benefits it holds in store. The objective of this paper is to explore those benefits while also suggesting how certain foreseeable risks can be overcome. Fundamentally, the paper makes the positive case for AI as a “general purpose technology” — analogous in impact to previous world-changing technologies like the steam engine, electrification and the microchip — that promises to reinvigorate economic growth through sustained impact on productivity globally. The paper also serves as a scene-setter for subsequent reports by the Public Policy Forum that will identify specific opportunities and challenges leading to policy recommendations to enable Canada to maximize the net benefit of the AI revolution.

Responding to platform firm power: differing national responses

Angela Garcia Calvo, Martin Kenney & John Zysman, New Political Economy
Aware of the power of platform firms and the risks of the platform economy, governments are reconsidering the dominant laissez faire approach in favour of strategies that regulate the power of platform firms. Transnational dynamics play an important role in shaping emerging national regimes, but this paper argues that governments are also influenced by three factors that operate primarily at domestic level: the agency of platform firms, the impact of first-mover US platforms, and domestic politics. The authors illustrate their approach through an analysis of the trajectories and regulatory measures of four economies: the US, the EU, China, and India. As governance efforts expand to emerging technologies such as AI, the author's analysis presages broader changes to the structure of what was, with a few important exceptions, a relatively borderless global online economy.

Automotive Microchips Working Group Report: Bridging the Gap in Canada's EV Supply Chain

Canada’s Semiconductor Council
This report highlights critical findings and recommendations to strengthen Canada’s role in the evolving electric vehicle (EV) and automotive semiconductor supply chain. With the global automotive industry shifting towards sustainable and electric solutions, Canada is poised to take advantage of its robust academic, industrial, and tech ecosystem to address the gaps and drive innovation in automotive semiconductors.

Policy Digest

Innovation-Related Items from the 2024 Fall Economic Statement

This Policy Digest summarizes items from the Government of Canada's 2024 Fall Economic Statement that are related to innovation policy.

Reforming and Enhancing the Scientific Research and Experimental Development (SR&ED) Tax Incentive Program

Department of Finance Canada
In the 2024 Fall Economic Statement, the government is going beyond its commitment in Budget 2024 to further capitalize the SR&ED program by proposing to invest $1.9 billion over the next six years and make significant reforms to the program. Specifically, the government is proposing to:

Increase the expenditure limit on which the enhanced 35 per cent rate can be earned from $3 million to $4.5 million. As a result, qualifying CCPCs would be able to claim up to $1.575 million per year of the enhanced, fully refundable tax credit;
Increase from $10 million and $50 million, to $15 million and $75 million, respectively, the taxable capital phase-out thresholds for determining the expenditure limit;
Extend eligibility for the enhanced 35 per cent refundable tax credit to eligible Canadian public corporations on up to $4.5 million of qualifying SR&ED expenditures annually.
Restore the eligibility of capital expenditures for both the deduction against income and investment tax credit components of the SR&ED program. The rules would be generally the same as those that existed prior to 2014 and would apply to property acquired on or after the date of the 2024 Fall Economic Statement and, in the case of lease costs, to amounts that first become payable on or after the date of the 2024 Fall Economic Statement

Also see here for coverage by The Logic.

Unlocking Pension Investment in Canada

Department of Finance Canada
In Budget 2024, the government announced that Stephen Poloz, former Governor of the Bank of Canada, would explore how to catalyze greater domestic investment opportunities for Canadian pension funds. Since then, the former Governor has actively consulted and engaged with pension funds, equity investors, academics, unions, and industry representatives on ways to facilitate domestic pension investment.

In connection with that work, in the 2024 Fall Economic Statement, the government is moving forward with a suite of measures to facilitate increased pension fund investment in Canada. These measures include:

Removing the current rule limiting investments in Canadian entities by pension funds to no more than 30 per cent. This will make it easier for Canadian pension funds to make significant investments in Canadian entities. During the development of regulatory amendments, the federal government will consult with provinces on the treatment of provincially-regulated pension plans.
Crowding in private venture capital by launching a fourth round of the Venture Capital Catalyst Initiative with $1 billion in funding in 2025- 26, on a cash basis. To leverage more private venture capital, this round will include more enticing terms for pension funds and other institutional investors.
Bolstering mid-cap companies’ access to capital, by providing up to an aggregate of $1 billion, on a cash basis, to invest in mid-cap growth companies. The government’s investment will be structured to be concessional and equal to 25 per cent of net new private investments, in order to crowd in additional private capital into the growth equity market.
Securing Canada’s AI advantage by unlocking up to $45 billion in aggregate loan and equity investments for AI data centre projects. To access these loans or project equity, Canadian pension funds must invest at a ratio of 2:1 of their own capital, via debt or equity, and become significant shareholders in an AI data centre project. Seven pension funds have expressed interest in working with the government on detailed project parameters.
Helping airports attract the investment needed to improve, by engaging with airports and pension funds on ways to further incentivize investment and development on airport lands. This includes exploring potential changes to airport authority ground leases.
Exploring lowering the 90 per cent threshold that currently limits municipal-owned utility corporations from attracting more than 10 per cent private sector ownership. Lowering this threshold for Canadian pension funds would allow them to acquire a higher ownership share in these entities. For example, municipally-owned electricity utilities would be able to access more capital to meet future demand and expand electricity production and distribution grids.

Also see here for coverage by The Logic.

Events

OPPORTUNITIES

Call for application for a fellowship for the project “Science technology relationships in the development of AI in the health sector”

The application for this University of Torino position must be submitted exclusively online, using the form available here: https://forms.gle/NHKw4Nnhta7Mew4BA .Applicants are advised that once they receive the application registration form via email, they must complete the transmission by printing the said email, signing it and transmitting the scan to the following address: incarichi.cle@unito.it.

Duration: 18 months. The total amount of the grant is € 34,200.00 and is paid in monthly installments (€ 1,900.00 per month after tax). The research activity consists of:
- Research on the diffusion of AI and robotics technologies within hospitals.
- Creation and analysis of comparative data at regional and national levels.
- Production of two articles to be submitted to international scientific journals.

EVENTS

Rise and Fall of the Inclusive Innovation Monitor and Lessons for Future Initiatives

January 15, 2025, 13:00-14:30 EST, Dr. Daniel Munro, Inclusive Innovation Speaker Series, Format: Hybrid (virtual and in-person)
In the depths of the COVID pandemic, researchers from the Innovation Policy Lab at the Munk School of Global Affairs & Public Policy and the Brookfield Institute for Innovation and Entrepreneurship built Canada’s first “Inclusive Innovation Monitor” (IIM). The IIM aimed to extend and improve efforts to measure Canada’s innovation performance by addressing some of the gaps in other innovation scorecard initiatives including, critically, who gets to participate in innovation, and how its risks and benefits are distributed across In the depths of the COVID pandemic, researchers from the Innovation Policy Lab at the Munk School of Global Affairs & Public Policy and the Brookfield Institute for Innovation and Entrepreneurship built Canada’s first “Inclusive Innovation Monitor” (IIM). The IIM aimed to extend and improve efforts to measure Canada’s innovation performance by addressing some of the gaps in other innovation scorecard initiatives including, critically, who gets to participate in innovation, and how its risks and benefits are distributed across individuals and communities. In this talk, IIM lead researcher, Dan Munro, will reflect candidly on what the IIM aspired to be, how it came about, why it (mostly) went away and why it still matters.

Speaker's bio: Dr. Daniel Munro is Director, Research and Innovation at Actua, Canada’s largest youth STEM outreach organization, and Co-Director of Shift Insights, a research and policy shop that examines the social, technological and economic challenges and opportunities facing Canada. Previously, Dan was Senior Fellow in Innovation Studies in the Innovation Policy Lab at the Munk School of Global Affairs & Public Policy at the University of Toronto (2017-2024), Research Fellow at the Brookfield Institute for Innovation + Entrepreneurship (2017-2020), Associate Director of Public Policy at the Conference Board of Canada (2008-2017) and Senior Analyst at the Council of Canadian Academies (2007-2008). Dan’s research and teaching focus on science, technology and innovation policy; skills and education; and applied ethics, including the ethics of innovation and space ethics. He holds degrees from the University of Toronto (BA), Western University (MA) and M.I.T. (PhD).

The 10th Atlanta Conference on Science and Innovation Policy

May 14-16, 2025, Georgia Institute of Technology
Hosted by Georgia Tech, the Atlanta Conference provides a forum to present and discuss high quality empirical research by about 300 scholars representing more than 30 countries that focus on the challenges and trends associated with science and innovation policy and processes. Abstracts Due: Nov. 17, 2024.

Twin Transition, Ecosystems, and Disruptive Innovation

October 23rd-24th 2025, Venice School of Management - Ca’ Foscari University of Venice, San Giobbe - Economic Campus.
The 19th edition of Regional Innovation Policies Conference will take place in Venice, Italy.

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This newsletter is prepared by Travis Southin.
Project manager is David A. Wolfe