The Resource Curse and Weak Commercialization

Aug 12, 2014
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The Resource Curse and Weak Commercialization

 

Canada’s sub-par commercialization of R&D is not caused by government, or universities, or research labs.  It is ’caused’ by inaction by the private sector.

Commercialization of R&D will only work if it is ‘pulled’.  Pushing commercialization is like pushing on a rope.   In Canada, on average there is a massive lack of ‘pulling’ by the private sector.

There are a number of reasons why Canada’s private sector is so dis-interested in innovation and commercialization.  One of the important ones is that a wealth of natural resources means that there are easier ways to make money.  Innovation is hard.  If people can make money ‘ripping and shipping’ raw commodities, then that is what they will do.  Most people will not proactively take on the much harder job of innovating and commercializing new ideas if they can make a good living just exploiting natural resources.

Several years ago when the Canadian dollar rose well about $1 US, there was much debate among economists about whether Canada did or did not suffer from ‘Dutch disease’.  Narrowly defined, Dutch disease occurs when natural resource wealth causes the domestic currency to rise, and thereby cripples domestic manufacturing, especially for exports (put crudely, local natural resource wealth kills local manufacturing).  Economists with links to Alberta claimed there was no problem; economists with links to Ontario, especially to auto manufacturers, claimed that we faced acute Dutch disease.  All of this just proved two things: i) most economists will sing the tune of whoever signs their pay cheque and ii) the debate was devoid of knowledge of the real world.

Anyone who has been in the corporate finance, innovation or commercialization business in Canada can tell in a heartbeat that natural resource wealth sucks the oxygen out of the room to the detriment of every other element of the economy, not just manufacturing.  In fact, the impact of natural resource wealth on currency and thus on manufacturing is trivial compared to the broader impact that natural resource wealth has on people’s attention, efforts, and the flow of capital and brains.  When money and brains all flow into natural resources, there will not be much commercialization of R&D going on.  Try raising money in Canada for most technology start-ups when oil is well over $100/barrel, or gold well over $1,250 an ounce, or silver …  and you will immediately confront this reality.

And so, one of the key reasons that the rate of commercialization of R&D is low in Canada can be well summarized as “if you can rip and ship, why innovate?”

Neil

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