While organizations such as CATA herald the importance of an Innovation Nation, study results beg the question . . . is anybody listening?

Canadian corporations cut spending on research and development for the fifth year in a row, despite increasing revenues, reports an annual study by a business intelligence firm.

from the November 2nd, 2011 Huffington News post “Canadian Firms Slash R&D Spending Again

In what is still one of the most popular segments in the history of the PI Window on Business Show, with more than 4,200 downloads in the 48 hours immediately following the live broadcast, Brad Feld’s perspectives on the need for Founders Visa’s for foreign students who, after graduating from prestigious American colleges, are eager to establish U.S.-based enterprises stimulated deep debate.

In a follow-up to that segment, Brad joined me to talk about an even more controversial subject based on a March 29th, 2010 article by Arianna Huffington titled “When It Comes to Innovation, Is America Becoming a Third World Country?

Personally speaking, this is not a topic that is new to me as I posed this very question in my own series of articles dating back to 2007 on the Principles of External Economies, Clustering and the Global Value Chain, to the more recent Buy American coverage in which I introduced the Clark and Fourastie “three-sector hypothesis of industry” (which is now four with the advent of high tech and R&D industries) as it relates to the development of a wealthy nation’s economy.

Specifically, and within the context of this recent study’s findings, has the government past and present done enough to stimulate development and growth (including re-training) in Quaternary sectors to counteract or counterbalance this disturbing trend?

Quaternary Sector: A Natural Progression for a Wealthy Nation?

For those of you who may be unfamiliar with this reference, the Quaternary sector is considered to be an extension of what is referred to as the “three-sector hypothesis of industry.”  Developed by Colin Clark and Jean Fourastie, the hypothesis includes the extraction of raw materials (Primary), manufacturing (Secondary), and services (Tertiary).

Under a “general pattern of development,” a wealthy nation progresses through each phase.  Effectively managing this progression is critical to what Fourastie referenced in his 1949 publication “The Great Hope of the Twentieth Century” as “the increase in quality of life, social security, blossoming of education and culture, higher level of qualifications, humanization of work, and avoidance of unemployment.”

Because this transitional process spans many years, the groundwork for where we are today was laid a long time ago, through different times and involving many different governments.  Therefore from a political perspective, and in relation to my earlier question “has the government done enough to stimulate development and growth (including re-training) through each sector,” this is truly a bipartisan issue that should not solely rest at the feet of the current administration.

This said the present government still has responsibilities relative to at least pointing our country in the right direction, beginning with assessing where Canada is in terms of the progression from Primary to Secondary to Tertiary and of course Quaternary sectors.  The next logical step would be to develop a strategy in which the cost of making the necessary progressive series of transitions is calculated both in the short-term as well as the mid to long-term, keeping in mind that Canada’s rich, indigenous resources means that we will always be somewhat reliant on a model in which the Primary sector will play an important role.

Properly leveraging these indigenous resources to their maximum potential will however serve as a catalyst for the economic progression of the country into and through the other sectors.  The Quaternary sector comes into play as an integral part of this natural and necessary progression.

The Quaternary sector is generally viewed as being the engine driving both innovation and expansion.  It consists of those industries providing information services such as “computing, information & communication technologies, consultancy, research and development.”

While similarities with the tertiary sector are often made as they are either service-based or oriented, knowledge-based industries are incredibly important.  Look at the United Kingdom.  The Tertiary and Quaternary sectors represents the largest part of their economy, employing 76% of their entire workforce.  Another interesting area to be researched would be the parallel breakdown for Canada and the United States in this same area?

Let’s consider India.  Indian software engineering talent has made that country the off shoring destination of American high-tech firms, each of which have committed to investing $1 billion into its economy.  The result of this boom is that India has seen double-digit wage growth for much of the 2000s.

Again, where are Canada and the United States in relation to India’s evolution?

While there are to be certain no easy answers, nor can one expect to undo the lack of planning over the years and decades in terms of forwarding an Innovation Nation concept, what can be done is to begin recognizing the importance of progressing into these key industry sectors and laying the groundwork for doing so in as short a time frame as possible.

Terrence Matthews

In this regard, the recent study should serve as the proverbial starting gun to get us in the race towards becoming a key player in the emerging global economy.

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