Making Innovation a Policy Mindset

To: Canadian productivity observers  
From:  Daniel Schwanen  
Date:  October 28, 2026 
Re: Making Innovation a Policy Mindset 

For more than a century, Canadians have worried about this country’s difficulty in turning good ideas into lasting commercial success. Innovative Canadian firms continue to emerge, but not in sufficient numbers to give us confidence that Canada can consistently generate good jobs and rising incomes in a world of rapidly changing technologies and markets. 

There is certainly no shortage of existing and proposed actions to address the problem. They range from strengthening scientific and engineering education – and now AI literacy – to the perennial subsidization of research and development activity and funding the research infrastructure itself. Others emphasize the conditions that can encourage innovation, such as competition, tax incentives, intellectual-property protection, or technical assistance for commercialization. 

All these approaches have their role in a vibrant innovation ecosystem. Yet, as a collection of measures, they too often overlook key historical drivers of innovation by private actors and governments. They also pay insufficient attention to the policy decisions that can discourage or obstruct innovation, countering pro-innovation policies. 

At its core, innovation depends on people being able to pursue ideas and turn them into reality. Talented individuals and ambitious firms will naturally gravitate toward places where their ideas can be hatched, tested, commercialized, and rewarded. There is little point lamenting the departure of talent, startups, or intellectual property if Canada offers fewer opportunities to build successful careers and businesses based on new ideas. 

Governments have often historically stimulated innovation by setting ambitious goals and co-ordinating efforts to achieve them. But governments must be careful not to become places where innovation dies under layers of process, precaution, and risk aversion. 

This means creating room for experimentation by encouraging innovation sandboxes, innovation marketplaces, and outcomes-based procurement. The objective should not be to dictate specific ways to address problems, but to create conditions in which innovators can propose and implement solutions. 

At the same time, innovation policy requires discipline. Not every attractive-sounding proposal deserves public support. While a healthy innovative economy will inevitably produce failures, they should not absolve governments from paying attention to the conditions that are likely to maximize success.  

Such discipline is particularly important as governments embrace a series of industrial policies. Concepts such as “build, partner, buy” or “economic sovereignty” can be useful guides to decision-making regarding which project to support, but not if they become simply mantras that make governments overlook project flaws and costs. 

There are certainly cases where security concerns or supply-chain resilience justify developing domestic capabilities for their own sake. But comparative advantage still matters. If we assume that products are superior simply because they are made in Canada, we will learn little about competitiveness. If we assume that innovation automatically results from large numbers of firms competing against each other, rather than also from firms collaborating to achieve scale, we will overlook important sources of success. If we assume that owning natural resources automatically means we can profitably dominate every stage of their downstream processing, we risk investing heavily in activities that may never become globally competitive. All these lines of thought risk making us less, not more innovative. 

The broader point is that innovation is about how decisions are made across government and society. Education policy, procurement policy, regulation, how we tax growth, whom we trade with, and even cultural policy can either encourage innovation or suppress it. 

Policymakers – and managers at all levels – should regularly ask whether their decisions encourage experimentation, reward productive risk-taking, attract and retain talent, and help to scale promising ideas, while ensuring smart regulation or other safeguards are in place to prevent possible harm. 

We will know we are making progress when we see more business formation, more growing Canadian firms choosing to expand here rather than abroad, and, in general, more capital investment – a sure sign of confidence in growth prospects based on the latest technologies.  

Innovation is not something that happens “out there” in a separate policy silo. It should shape how we think about every major decision. 

Daniel Schwanen is senior vice-president of the C.D. Howe Institute. 

To send a comment or leave feedback, email us at blog@cdhowe.org. 

The views expressed here are those of the author. The C.D. Howe Institute does not take corporate positions on policy matters. 

A version of this Memo first appeared in The Hill Times.