MLI Paper – Barriers to competition hurt innovation, study says
OTTAWA, September 27, 2012 – Canada should eliminate barriers to market entry if it wants to foster the innovation needed to improve our productivity, according to a Macdonald-Laurier Institute True North study released today.
While governments make much of their desire to promote innovation, it is difficult for them to do so directly because it is complex and diffuse. On the other hand, it is clear that vigorous competition provides important stimulus for improved productivity and innovation, says Professor Steven Globerman in a study entitled Public Policies to Encourage Innovation and Productivity.
Because innovation spurs productivity and raises future living standards, Ottawa has been preoccupied with its promotion for some time. Last year’s Jenkins expert panel report, for example, found that while Canada offers some of the generous incentives for R&D in the world, it is near the bottom in actual R&D spending.
The Jenkins panel found Canada needs to do a better job in helping SMEs grow into world-class innovators. The panel also came up with six main recommendations in which the government would take a greater role in fostering innovation.
But Globerman concludes Canada can better boost innovation and productivity by simply encouraging more competition, a policy area in which Ottawa exercises considerable clout.
Reducing barriers to market entry in Canada will facilitate emergence of new firms that will introduce new products that will foster competition, Globerman says.
“At a minimum, an effective national innovation policy should explicitly acknowledge the ways in which government policies affect competitive conditions in domestic markets, even when the laws and regulations in question are intended to achieve other public policy goals,” Globerman says.
His comments come amid increasing debate over Canada’s barriers to foreign ownership of industries ranging from telecommunications to newspapers.
There is abundant evidence, Globerman says, that competition promotes commercialization of new products, as well as adoption of new production and organizational processes. “The empirical evidence documents a strong link between the openness of an economy and productivity growth.”
In other observations, Globerman says government grants to directly fund innovation activities have the most impact when directed to small and mid-sized firms. However, that funding also winds up with firms more adept at lobbying than research and development.
Although there is no instant answer to improve innovation and productivity, ever-increasing competition provides the best odds. “Public policy should choose to err on the side of having too much, rather than too little, competition.”
Steven Globerman is the Kaiser Professor of International Business at Western Washington University, College of Business and Economics and an Adjunct Professor at Simon Fraser University, Beedie School of Business.
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The Macdonald-Laurier Institute is the only non-partisan, independent national public policy think tank in Ottawa focusing on the full range of issues that fall under the jurisdiction of the federal government. It initiates and conducts research identifying current and emerging economic and public policy issues facing Canadians.
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