Transcript: The New Economy Series: The Importance of the Intangibles Economy
[The animated white Canada School of Public Service logo appears on a purple background. Pages turn, opening a book. A maple leaf appears in the middle of the book that also resembles a flag with curvy lines beneath, and text beside it.]
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[It fades out, replaced by a Zoom video call. The video window is filled with a white man who has a black and grey beard and black glasses. Behind him is a muted painting of a landscape. The man smiles.]
Taki Sarantakis [TS]: Good afternoon, ladies and gentlemen. Welcome to the Canada School of Public Service, to our new series that we are launching in partnership with our friends at the Centre for International Governance Innovation in Waterloo, Ontario. My name is Taki Sarantakis, je suis le président de l'école. Quel temps de participer et de penser, de parler concernant la nouvelle économie.
The historian Yuval Harari has said that pandemics and public emergencies push the fast-forward button on history, and we can see that today. We can see that things that would probably have taken years, if not decades, to happen are happening in moments and sometimes in days. And things that change slowly are now changing rapidly. We talk about change a lot in the Government of Canada, but change is something that's always been with us. What really is distinctive about change today is the rapidity with which change happens, especially in a connected world. And when you have a connected world, whether that's connected through broadband, through supply chains, through population movements, things that used to take a long time now happen really, really rapidly. So the environment with which you, as civil servants within the Government of Canada, operate changes around you to an extent that has never been the case for your predecessors. To the extent that you're lucky, you're lucky that your successors will have to operate even faster than you do, believe it or not. But this is the slowest that change will ever be in your lifetime.
So, we have over 1,100 people registered with us today watching online to talk about the new economy. I think that speaks to a hunger and a thirst for understanding what is going on around the world, around us. What is it that's going on around us? So many things are happening. One of the things that's happening is that new giants are emerging almost daily and taking over institutions and companies that have been with us and our parents and our grandparents for generations. Tesla, which was born in 2003—2003 many of you were already in the Government of Canada in 2003, I know I was—which was born in 2003, has a market value that exceeds General Motors. It exceeds the market value of Ford. In fact, it exceeds the market value of both of them combined. And Tesla obviously isn't even the only digital giant. Facebook was born in 2004. Facebook now has something in the order of three billion users. Imagine that, imagine something that was born in 2004 has connected about a third of the planet and it's going more, it's adding every day.
Google was born in 1998. Google today sells more ads than ABC, NBC, and CBS combined. The three networks of our lifetime that we were all growing up and, you know, remember the Super Bowl when it would cost a million dollars a minute to advertise on the Super Bowl. Well, Google now sells more ads than all three of those television stations combined. And Amazon, Amazon is the old man of this epoch. Amazon was born in 1994 and Amazon now is running supply chains and web links and clouds all over the world, and it was born in 1994. And if you think that this is just an international phenomenon, think again. Shopify is now the largest company in Canada by market valuation. It exceeds the market valuation of Imperial Oil, of the Royal Bank of Canada, of the Bank of Montreal, of banks and institutions that have been around for over a century. And it just started a little while ago and now it's more valuable than they are. Did they discover gold? Did they discover platinum? Did they discover diamonds? No. What they discovered, what all of these companies discovered, were ideas. And ideas, our intellectual property, is the new currency of the modern economy and something that we, comme fonctionnaires au centre du gouvernement du Canada, doivent comprendre, il est notre responsabilité d'avoir une connaissance de ces aspects de nouvelle économie.
As I said, we're joined today with our friends from CIGI and I'm very pleased to introduce its president, Rohinton Medhora, who will introduce, who will give us a few words about CIGI. Rohinton.
[In the Zoom controls, Taki's video is unpinned so that Rohinton appears beside him in another video window. Rohinton is a man with medium brown skin, short white hair, and a blue button-down shirt. Behind him, a cabinet is filled with papers. Rohinton smiles.]
Rohinton Medhora [RM]: Taki, thank you so much. And hello, everyone. It's a pleasure for us at CIGI to be connecting with the Canada School and all of you in the civil service on this important subject through a series of lectures.
[Rohinton's window fills the screen as his video is pinned.]
And so let me compliment what Taki said in a couple of minutes by making these points. The first one, which we all know and Taki underlined, is that the digital era, whether it's about intangibles, data, IP, digital, there's this nexus of issues around that which isn't just any trend, but a defining trend. It permeates absolutely every part of our life—economic, non-economic—and therefore is a condition for effective public action, which is where the civil service and all of us come in. In this series of lectures, I hope you find a number of things—and there's a number of insights that will come out, and in this opening lecture, many of them will.
Two or three broad generalizations about that. One, I think you will see that the distinction that we've sometimes made between international and domestic goes away when you want to regulate or tax multinational digital platforms. Is that domestic policy or is it international policy? When you hear about data flows and data localization, is that domestic policy or is it international? And so there's a series of these issues and this bleeding in and out in which political borders barely matter—although geopolitics does—is something I think is striking. The second is the distinctions that we make sectorally between the economy, between health, personal security, human rights, and on and on. Again, think of the current situation we're in. You can use cellular technology for epidemiological purposes, but it also raises privacy, economic and other concerns. Why think about them separately when in reality they have to be taken all together? And so throughout this lecture we'll be touching on subjects like trade, investment, competition policy, the importance of standards, cybersecurity, intellectual property, indeed mental health, and a series of issues to do with public health more broadly. And so I will turn back to you by simply saying this is something that's going to be with us Taki for a good long time. And it's imperative for us as citizens, but especially as officials, to understand the analytical base, because this is all evidence driven, and then decide for ourselves what the policy implications for Canada might be. So, thank you again and back to you.
[Taki's window reappears to the left of Rohinton's. He smiles.]
Taki Sarantakis: Merci, Rohinton.
[Taki's video is pinned and his window fills the screen. His video lags behind slightly as he speaks.]
For those of you who aren't familiar with CIGI, this is a really good opportunity for you to maybe poke around a little bit on their website. They do some ground-breaking stuff in the new world of the economy. And again, it is, as a resource society, as a resource country, historically we've been very blessed. But the world in 2020 and beyond, while resources will always be important, ideas more and more are driving the world. And we're very blessed to have a think tank that is a Canadian think tank that's putting a particular domestic focus on issues that are international. Notre premier invité s'appelle Bob Fay and Bob is the director of research for the Digital Economy at CIGI.
[A second window appears beside Taki's. Bob is a bald white man in a blue button-down shirt. His camera is angled up toward him, showing his angled ceiling above.]
Bob, like Rohinton before him, is a friend of the public service, having worked in the public service, including as a special assistant to Governor Mark Carney, another great Canadian who has done wonderful things on the international stage. Our second… I'm speaking French in my brain.
Notre deuxième invité s'appelle Dan Ciuriak, who is a senior fellow at CIGI, and he also had an illustrious career in the Government of Canada. After about 30 years, he retired as the deputy chief economist at Global Affairs Canada.
[Dan's video window appears. He is a white man with grey hair, black glasses, and a white button-down shirt. Behind him, a full bookshelf sits against a yellow wall. Dan gives a small smile.]
Après avoir fini la présentation, on invite vos questions et vos commentaires. Avec ça je donne la parole à Bob and Dan afin de commencer. Gentlemen.
Bob Fay [BF]: OK, thanks Taki. Dan, I'm just going to get the presentation cued up.
Dan Ciuriak [DC]: Okeydoke.
[All of the speakers' windows disappear as a screenshare begins. A slide pops up with the Centre for International Governance Innovation (CIGI) logo. Beside it is the title, "What are intangible assets?" Below it are three bullet points:
- "Assets that do not have a physical or financial embodiment, including investment in software, research and development, firm specific human capital, organizational capital
- Associated with innovated activity and important source of productivity growth
- Closely related to intellectual property."
On the right side of the screen is a pink circle labelled "Intellectual property." Four circles slightly overlap it. They are labelled "Patents," "Trade secrets," "Copyright," and "Trademark."]
Dan Ciuriak: Very good, so let me jump in here now. So, we want to talk today about the intangibles economy, and we'll start by talking about intangible assets. We've actually long talked about the intangibles economy in terms of services. Services are intangibles, however, where services are intangible products; today we want to focus on intangible assets. We've also talked for a long time about a knowledge-based economy. So, these are the assets that underpin this knowledge-based economy.
[A title slide with the CIGI logo reads, "The New Economy Series: The Importance of the Intangibles Economy." Bob and Dan's credentials are listed below: "Bob Fay, Director Digital Economy Research and Policy, CIGI" and "Dan Ciuriak, Senior Fellow CIGI." The website URL is at the bottom: www.cigionline.org. The presentation returns to the previous slide.]
In this economy, companies' knowledge assets include its technology, its specific human capital, its organizational capital. And these are combined to give a company the competitive edge to create quality products that could command a premium price and withstand competition from the low-wage economies that have been bursting on the scene over the last few decades, in particular the East Asian tiger economies. So, policy for this economy focused on the inputs, research, and development. We supported R&D spending, investment in information technology and software, education, focused on STEM skills to provide the person power and in tandem with our advanced economies, Canada increased the scope and intensity of protection for intellectual property.
So, in recent years now, an additional form of intangible asset, productive asset, has become very important, and that is data. And data is generated by the myriad daily routines of digitally connected individuals and machines. These ubiquitous devices capture data, and they include not only computers and smartphones connected to the Internet and social media platforms, but also fitness trackers, security cameras in buildings and surveillance satellites, sensors in pipelines, chips in smart equipment of all sorts, from cars to tractors to refrigerators. So, with the spread of these devices, we have basically datafied pretty much any aspect of economic activity. With ubiquitous mining, it's only a modest exaggeration to say if it moves, it's measured.
[Dan's audio is occasionally choppy.]
And historical data is being accumulated in amounts that are truly astronomical. So, the importance of data is now [inaudible] the accumulation of data that's been accumulated into vast stores, and that's what makes it valuable. In prior ages, when land was an essential asset, a country's wealth and power depended on its holdings of arable and well-watered land, and wars were fought for acquisition of land.
[Dan's voice cuts out repeatedly.]
With the industrial revolution [inaudible] and mass production machine, [inaudible] essential asset and the wealth and power in the industrial age went to the countries that accumulated the capital: equipment machinery. But with knowledge-based economy that became those that accumulated protected IP and used the power and wealth shifts from.... OK, the screen is frozen for me there, but I'll continue.
[The next slide is titled "Intellectual property at the heart of the intangibles economy." Two columns are below, labelled "Economy of Traditional, Tangible Goods" on the left and "Economy of Ideas, Intangible Goods" on the right. Arrows point from the dozen items in the left column to those on the right. Some of these include:
- "Ownership of a physical property is a positive right à Owning ("generating") intellectual property is a negative right
- Production and sale of physical property to generate revenue à Amassing IP and restricting use to collect "rents"
- The objective in industrial services/economy is to move inventory à The objective in the innovation economy is to acquire IP
- Traditional good can only be owned by one person at a time ("rivalrous") à IP is globally and simultaneously accessibly by an unlimited number of people ("non-rivalrous")
- Traditional infrastructure needed to move goods across borders to individual customers à IP is impossible to determine where it originates and how it moves across borders"]
So, intellectual property, or an economy which is based on intangible assets, behaves very differently from one which is based upon physical assets. An intangibles economy has a [inaudible] character who is differentiated from this traditional industrial economy. For example, ownership. In the world of tangible assets, ownership is an exclusive positive right. In the world of intangibles which have [inaudible] characteristics, ownership depends on denying access to others. It's a negative right. The source of income in the world of tangibles comes from mass production to expansion and market share. But in [inaudible] tangibles come from capture of [inaudible] and selling its goods by moving inventory. But in the world of intangibles, the objective is to amass a war chest of IP that can [inaudible] in its own production, and payments to these—only one person can use a cell phone at a time. But IP is non-rivalrous, there is no limit to how many people can use a product at the same time when it's intangible. It changes the dynamics of the [inaudible] completely.
Goods, these have to move through the conventional backbone infrastructure of an economy, which means that production is rooted, in the sense it is done where the infrastructure is. That's one reason why the expensive economies, which have got a world-class infrastructure like Germany, can compete with low-wage economies. But with IP, it can be located anywhere. Today it could be in the U.S., tomorrow in Ireland. Indeed, it's located where the tax benefits are. The shift of U.S. IP to Ireland at one point in response to a tax change resulted in a massive one-year surge of Irish GDP. Not that the Irish felt this, but certainly its economy did in a measured sense.
So, in terms of the.... In a tangible world, the search for efficiency in goods production generates global value chains with spread wealth. But IP is based on winner-take-most economics. Once the IP is produced, there are no more wages to be paid, just rents to be collected. So again, the knowledge-based economy concentrates wealth, where the industrial economy spread wealth. By its very nature, the industrial economy that existed in the post-war era was a highly competitive one and competition policy aimed to prevent its concentration and development of monopolies. But with the intangibles economy, the aim is actually the opposite, is to create, create and enforce a temporary monopoly. Again, in the traditional economy, trade agreements increase competition. They actually eroded the value of vested interests in that economy. But in the intangibles economy, trade agreements work to prevent competition, they restrict it, they protect the IP. In this sense, modern trade agreements are asset value protection agreements, and they protect the value of vested interests. So, let's move on to the next slide.
[Slide three is titled "Intangibles are very valuable." A bar graph shows the breakdown of tangible and intangible assets from 1975 to 2019. The label at the top of the graph reads, "Components of S&P 500 Market Value." In 1975, intangible assets composed of 17% of the market value and tangible assets held 83% of the value out of about $22 trillion. In 1995, intangible assets held 68% of the market value and tangible held 32%. In 2019, intangible assets held 91% of the market value, while tangible assets held only 9%. Below the graph are the words, "Apple, Amazon, Alphabet, Microsoft, Facebook total value is ~$4 trillion, with total tangible assets of ~$225 billion (~5%)."]
So, just how valuable are these intangible assets? Well, in the most advanced knowledge-based economy, which is the United States, intangible assets now account for over 90 percent of the S&P 500. That's huge. Back in the 1970s, it was on the order of 20 or 30 percent. That shows the enormous expansion of the value of assets. I think Taki was mentioning the massive market capitalization of some of these companies. Well, when we did this measurement of the leading [inaudible] companies had a market cap on intangible assets is that we have not invested in them.
[The next slide is titled "Canada is falling short in innovation." A line graph titled "Intangibles investment (share of nominal GDP)" has the numbers zero through six on the y-axis and the years 1995 through 2017 on the x-axis. It shows the United States increasing from 4 to 5.5 over the years, while Canada starts at about 2.3, increases to just over 3, and drops back down to about 2.6. A second line graph shows various areas' number of AI patents applied for between 1988 and 2017. China's is significantly the highest, followed by the United States. A quote on the graph reads, "According to WIPO, Canada is the only jurisdiction to see a decrease in the number of AI patents applied for between 2016 and 2018."]
So, comparatively speaking, Canada is an intangible-asset poor country. And to understand the significance of this strategy for us, it's useful to think of the game of Monopoly. So, the way that Canada plays this game is we go around the Monopoly board, we collect our 200 dollars at Go and we pay rent to the owners of assets.
Bob Fay: Hey, Dan, it's Bob. Bob here. To use a Star Trek analogy, you're breaking up. I'm not sure if we can do anything on your end.
Taki Sarantakis: Bob, would you mind taking over, please, because Dan's broadband isn't working?
Dan Ciuriak: [inaudible]
[A new slide pops up, titled "Data has changed the economics of the economy." A list of subheadings and bullet points are in a box:
"Powerful economies of scale
- Quality of predictions improves with quantity of data
- High fixed cost of maintaining AI expertise
Economies of scope
- Sharing data across applications in multiproduct firms
- Cross-referencing data
- Global vs. local externalities
Pervasive information asymmetries
- Business models exploit information asymmetry
Replicator economies for Intangible Products
- Machine Knowledge Capital expands at near-zero marginal cost
- Digital products replicable and non-rival"
An arrow on the box points these to the image of two dozen people sitting around a conference table with a nameplate for Mark Zuckerberg at the head chair. Its description reads, "Market failure: concentration of market power, emergence of tech giants."]
Bob Fay: What? OK, OK, sorry, are you there Dan? OK, go ahead Dan.
Dan Ciuriak: [inaudible] OK, I guess I'm not coming through.
Bob Fay: OK, well, why don't I take over for a minute and we'll see… oh, Dan, you look…
Dan Ciuriak: So, am I coming through now?
Bob Fay: Yeah, you are. So, let's try.
Dan Ciuriak: OK, so I'll continue. So, again, Canada was not investing in this economy. And with regard to artificial intelligence, which is now the most important asset in the pipeline, we actually are one of the few countries which have not been increasing our investment and our pending activity in that sphere.
So, moving on to the data-driven economy, this is a really interesting economy in terms of just how prone it is to market failure. So, it features powerful economies of scale. Think about here, Google's [inaudible] server banks. It's one thing to have, data but to acquire the amount of data that Google has, which is then... drives the quality of its predictions and which drives the quality of its artificial intelligence expertise, it needs a lot of infrastructure to accumulate that. So, this is a game that goes to the big. Think of the economies of scope here. Sharing data across applications in multi-production, multiproduct firms allows the different forms of data to be cross-referenced against each other, which makes each type more valuable. Here, a good idea to have in mind is that of Facebook. It already had an enormous amount of information on its client base, but it was after the financial information, because that financial information, cross-referenced with everything else it had, made all of its data more powerful. This economy also features knowledge externalities. And here there's interesting distinction to be drawn between global and local externalities.
With datafication, global players have access to local knowledge externalities. This enables Google to compete at the local level for sales and advertising. Traditionally, global companies could only exploit the global knowledge externality. The data-driven economy is different. This is what enables, for example, an Alphabet to come into Sidewalk, with the Sidewalk project in Toronto, and hoover up the very local data and actually then dominate that economy. Typically, that was not the case previously. Now we have network externalities, and these are classic. One person has a phone, it's useless. Two people have a phone; now that's used [inaudible] members of the network, the better it is. This is a huge positive feedback loop in markets which are typical in the Internet world, which are two-sided markets where on one side you've got a user base generating information, on the other side you've got the sale of advertising or something else to target that population. These type of network externalities tend to tip the market towards one dominant player and that's what we see, for example, with the Facebook.
And then we have pervasive information asymmetries. Here, the business model of the data-driven companies is to exploit information asymmetry to improve their terms of trade, one might say. Think of it in this form: if you understand everything about a client, you can price your product to the point where that customer is willing to pay. So, price discrimination becomes a major feature of this economy. And what it does do is it shifts consumer surplus to produce a surplus. That's how these data-driven companies become so wealthy. Data is also like an industrial sense, a sixth sense that provides a data-rich company an evolutionary advantage in competing with other firms, and that also tends to drive it towards market dominance. So in this sense, I tend to call information asymmetry the original sin of the data-driven economy.
And finally, to top it off, this particular economy—because it deals with intangible products which can be circulated over the Internet with almost no friction and no cost—this creates machine knowledge capital, which, unlike human capital, is embodied, or machine capital, which is embodied say in a robot, this actually is, this kind of AI has zero marginal cost and it can be circuit around the world costlessly. So, once you've got the best AI out there, you become the superstar firm. Any one of these particular features would drive market failure. Together, they make the data-driven economy unusually predisposed to market failure and concentration, and that's certainly what we've seen. So, let's move on to the smile curve.
[The next slide is titled "The 'Smile' in the Intangibles Era." The y-axis is labelled "Value Margins." On the graph, a line is curved like a smile. The upper corners of the "smile" are near the top of the y-axis, and the middle section of the "smile" nears the bottom of the y-axis. The high point on the left side is labelled "Ownership, Enforcement, FTO" and the high point on the right side is labelled "Monetization: Data-driven market capture/App "rentals" Branding." The lower middle section is labelled "AI/ML Value Chain: data categorization, coding, exploring (start-ups)." A second line has a slight curve to it, starting and ending higher while being slightly lower in the middle. It stays consistently in the upper half of the y-axis. This line is labelled "Traditional Value Chain." Below the graph is a straight line of the same length, with the initials "HQ" at both ends. Above the line are the words "Low cost locations with skilled workers (India/Canada etc") with three arrows pointing up to the middle of the graph. Below the line are the words "International Distribution of Work/Rent Capture."]
This particular curve illustrates, I think, graphically, where Canada is in this economy and where we perhaps might want to go. This is a familiar curve from the knowledge-based economy era and what it showed was that you had the traditional production of goods and services and standardized services was actually at the bottom of the curve. And all the value came from the ownership of the intellectual property and R&D at the front end and then trademarks and marketing at the other end. Now, in this particular world, the producers of goods and services, all of this tend to be outsourced to the low-cost countries, the low-wage countries. This was the origin of global value chains, while the wealthier knowledge-based economies congregated at the, up the two slopes of the curve. In the data-driven economy, we have the same sort of a curve now, but it's actually probably even more pronounced. At the bottom of this curve, what we see is the grunt work of developing data applications, of developing artificial intelligence, data categorization, coding, exploring this world. This is the world of start-ups and up at the front, up at the two ends, what you have is the ownership of the IP, which this production work generates. And there the issue lies within enforcement of ownership of the AI, of the IP, and here you get into litigation strategies and freedom to operate.
And at the other end of it, you've got the monetization of the artificial intelligence and the data, and these are the things that such as selling advertising, for example. So, where Canada's positioned right now, we're at the bottom of this curve. We have got the assets to produce, the human capital assets to produce artificial intelligence, we're great at start-ups, but we do not accumulate the IP and the intangible assets. And this was the whole issue which played itself out with Sidewalk Toronto. So, a final observation I would make, then, is that, in terms of the dynamics that we've seen with populism and the emergence of a political sort of conflict within countries… when this curve was applied to the industrial economy, what happened was that the manufacturing jobs were good jobs as long as there was rent. Once you get into the latter stages of the industrial economy, all those rents were squeezed out. They were competitive. There was no longer a good job. They were outsourced to China and so forth. But in point of fact, it was the squeezing out of the rents which eroded that particular middle-class, good job economy. Today that remains the case in where wealth and power and the prosperity lie, are on the two slopes of that curve and that's where Canada wants to move. So, Bob, I'll turn it over to you. Hopefully that came through reasonably well.
[Slide six is titled, "COVID-19 has raised a lot of 'intangibles' issues." Various issues are listed below:
- "Digital dissemination of dis/mis-information/fake news and cures
- Digital access: work, education, social connections, retail
- Digital infrastructure resilience
- Acceleration and impact of automation: safety net, education/training
- IP/R&D and vaccine development/PPE production
- Cyber threats/attacks/ransomware on hospitals
- Privacy/mass data collection/contact tracing/surveillance
- US China tech war (IP/data); supply chains, national security
- Drivers of growth."]
Bob Fay: OK, thank you, Dan. So first I'd like to say that my remarks are drawing upon material that's actually been produced by a lot of our research fellows, including people like Dan, and they're high level. I'm going to cover a lot of topics rather quickly, but we do have plans to go into more depth on them in subsequent lectures. So the first point is, the pandemic has obviously revealed to us just how important the intangibles economy is to all of us. We've used digital technologies such as Facebook and Google and Amazon to keep in contact, to shop, to work, to educate our kids, and, of course, to find out information about COVID. We've seen how these technologies have permeated all aspects of our lives and the enormous benefits that they bring. And these technologies are all based on intangibles: research and development, software, brand recognition, copyrights, trademarks and patents and trade secrets, and very importantly, the data that drives them.
We've also seen how these technologies have changed the nature of work in the workplace, but we've also seen that not all people have the skills to use them effectively. We've seen safety net gaps and we've seen how these affect some groups more than others, and, in fact, we've seen the digital divide in action. But we've also seen new dependencies that have been created: supply chains, access to reliable digital infrastructure, as we've just witnessed, broadband and the need for accurate information. And this, of course, has taken place against the longer-term rise of automation, monopoly power and inequality.
So, with that background, what has COVID-19 raised beyond that? Well, obviously, as I've just discussed, digital infrastructure, accessibility, and resilience, and importantly, access to trusted information. We've seen the value in trusted information, for example, that given by our public health officers, and technology can get information to people at scale. But it also allows misinformation and disinformation at scale. And we've seen this. We've seen the spread of disinformation, fake cures, we've seen opinion spread as fact. And, of course, we've seen cyberattacks on hospitals and ransomware and others. It's also revealed the importance of the ownership of IP, intellectual property. We know that IP is important to stimulate investment in risky technologies and their diffusion, but it can also hold up diffusion too. And in this case, we've seen the need for sharing of information for vaccine development, for 3D printing of personal protective equipment. We've seen calls for patent pools and compulsory licensing. And in fact, Canada has implemented a COVID-19 Emergency Response Act to allow for compulsory patent licensing to the extent necessary for a vaccine.
I think we've also had a glimpse of the future workplace and to what extent will these tools that we've used during COVID-19 become the norm for work or for education? And what would that imply for education, for training, for our workplace setup, for the safety net, and whether it's equipped for such changes? And we've also seen issues related to privacy, security and surveillance. So, for example, do you know what is happening with the data each and every time you use an app and each time you use a social media platform? Do you know what you've consented to, how your data are being monetized to microtarget you and others with good and bad information? To surveil you and various aspects of your lives? And how could such data be used by employers, by government, by platforms? And do you know that your engagement with large social media platforms helped to cement their monopoly positions as they capture more and more data? And do you know that they are generally self-regulated, if regulated at all, nationally and globally? And this leads to the point on governance. At this point, governance of the digital economy is incomplete, fragmented, and, in some areas, nonexistent. And this has important implications, not only for Canadians and their use of technology, but also Canada's ability to thrive in the IP-driven world. So, are these changes we've seen related to COVID a new normal or not? If behaviour changes fundamentally, then our existing policies, regulations and laws may not be suitable or adequate.
[The next slide is "Against the backdrop of a challenging global environment." Points are listed below:
- "Pressure to deglobalize
- Trade agreements used to assert IP rights, asset protection
- New types of rivalries driven by data, IP, technology
- Rising trade frictions
- Supply chain resilience, national security, China dependence
- Adequacy of global safety net."]
And this, of course, is also taking place against a very challenging global environment, and COVID has brought to the forefront some of the international dependencies and trade barriers, like in agriculture and in PPE, and concerns about supply chains, whether they need to be reoriented. And then if so, what are the implications for prices and welfare? COVID has highlighted some of the intangibles issues related to trade; for example, dominance and intellectual property in a data-driven economy, which is ultimately what is behind China-U.S. trade disputes. And then the collection control and use of data as it crosses borders also raises a variety of privacy, competition, trade and national security concerns. Now, some of the issues about globalization that we've heard over the last decade are actually issues related to the safety net and equipping workers for the new opportunities provided by globalization, and this is likely to intensify.
And then the final point is not one that's gotten a lot of discussion, but it's the global safety net. And this is how less-developed countries are going to be challenged in this environment, they will require assistance for the pandemic and will require assistance with rising debt. Data and intangibles can be used to improve the safety net through cheaper financial services, improved policies and targeting of services, new development opportunities, but only if we get the governance right. If not, the intangibles economy could be a barrier for them instead.
[Slide 8: "Issues cut across the Public Service." A five-point star has a label at each extremity: "Economic," "Security," "Personal & Social," "Geopolitical," and "Government Services."]
So, you know, I'm preaching to the choir here because I know people listening, you've experienced how these issues just cut across the public service. With COVID-19, we've seen how the government, in attempts to get PPE, have had to deal with trade issues, protectionist measures, patent issues, for example, related to 3D printing, and agile procurement. We've seen how the imperative of public health measures has required support of policies in a number of areas: health policy, economic policy, trade policy, social and labour market policies, industrial policy, national security, public safety, and so on.
[Slide 9 is titled "Policy coordination essential." A circular arrow is labelled with four points, with the first one leading to the next and so on. The first point is "Horizontal policy making across government departments (and outside e.g. central bank, other governments.") Next is "Vertical policy making across levels of government." This is followed by "Multi-stakeholder input; Civil society, scientific community, academia," and lastly, "Coherent policies e.g. health and economic policy; health and privacy."]
This is the new norm and, of course, it all requires substantial policy coordination and perhaps in ways that we're not used to. So, not only has horizontal coordination been required in the example I just gave, but it's also required with respect to coordination with other agencies that have created complementary policies within their mandate, such as the Bank of Canada and CMHC. It's required consultation across levels of government. For example, the provinces have complemented federal government efforts in many areas. And it's required substantial stakeholder input. As various measures have been announced, feedback from stakeholders has helped to ensure that the benefits reach the intended recipients, and it also helped to identify gaps that needed to be filled.
[Next slide: "Post COVID policy will require even greater focus on data-driven economy and long-term growth." A red hexagon is in the middle of the screen, with the words "Government frameworks" and "trusted data for evidence-based policy." Six more hexagons surround it:
- "Fiscal and monetary policy to support recovery
- Policies for human capital investment and worker reallocation
- Intangibles investment
- Digital technology dissemination and adoption, data analytics
- Industrial policies, inclusive policies, integrated policies, infrastructure
- Opportunities that meet multiple objectives."]
Bob Fay: So, looking forward to post-COVID world, policy will, not surprisingly from our perspective, require an even greater focus on the data-driven economy and longer-term growth, taking into account the issues that Dan has already raised. So, what we've seen in the pandemic is policy has been made fast and flexibly. And that's been appropriate for the circumstances but, of course, it's not appropriate to meet the longer-term goals of boosting our living standards. We need to keep this agility so that policy and regulation adapts the data-driven economy. But as well outlined in Canada's Innovation and Skills Plan, we have a productivity problem in our country and focus needs to be based in improving productivity growth. So, what might that look like?
The first point is more of a general point that I've made in other commentary, that we need to keep our stimulus measures in place and not pull back too early or we risk permanent damage to our economy, and we can come back to that in a Q&A if people have questions. Let's focus on the next few points in the circle, which is what I call the drivers of growth: human capital investment, investment in intangibles and tangibles, and how we use them together.
We know that some firms and sectors will change fundamentally, and some firms will not survive. And this will happen against the background of broader structural change as we continue our shift towards—in the data-driven economy. We've seen the rise of new digital industries, we've seen existing industries transformed by data and digitalization, and we've seen others shrink in size. We need better diffusion of these technologies and new tools to do the job effectively, which I've coined "data analytics." Data and how we manage and use it is a key strategic asset and will lead to new products, services and processes. But, as with any technological change, this will require assistance of people to move into new opportunities, including changes to our education and training systems and suitable active labour market programs.
And, as Dan has highlighted in some of his other work for CIGI, we need to rethink industrial policy. Something that I remember, 15 years ago when I was working at the Bank of Canada talking to Industry Canada at the time, you really couldn't even mention those terms. But the data-driven economy with its market failures means that an activist industrial policy is required in some areas. And for example, you know, one initiative by the federal government are the superclusters. We also know that growth needs to be inclusive. Not only have we seen what happens when it isn't—anti-immigration, rising populism—inclusion is essential for growth.
So, as we adapt to COVID and its behaviour changes, evidence-based policies will become an even more important guide to policy. We've seen the reliance on technical expertise, as helping economic policy reformulated during the crisis. And we've seen the need for trusted data in particular, and this is something our statistical agency, Statistics Canada, is well equipped to do. Accurate and understandable data is essential to being used correctly for policy. And then finally, I have opportunities that meet up multiple objectives. I'll just throw in one example right now, and that's clean technology.
[The next slide is titled "And a focus on governance." A Venn diagram is composed of three circles, which are labelled "Personal vs. non personal data," "Big data analytics/AI platforms," and "National security cyber security." The intersecting section of all three circles is labelled "Governance," and has a list of points: "standards," "intellectual property rules," "regulation agreements/laws," "national," "international."]
We also need to focus on governance, and governance is one of those things we take for granted, especially in Canada, where we have good governance structures. Governance is essentially the frameworks that guide us in our actions and includes our laws, our regulations, standards, principles, social norms. And it's important because good governance promotes innovation and good growth. And there are clear gaps in the data-driven economy. We need appropriate governance that takes into account the differences between personal and non-personal data, how they may be combined with advanced analytics, such as those behind our digital platforms, and while taking into account national security and cybersecurity considerations. Governance is essential to unlock data and its value. It's an extremely valuable resource. Statistics Canada released experiments less than a year ago that, on the high end, place it at over 200 billion dollars Canadian, and I think that's likely an underestimate. And the amount of data is going to explode with the Internet of Things and 5G. So, to fully reap the benefits of big data, we need proper governance and the trust that that governance can bring, and that's the next point, is trust.
[Slide 12 is titled "Governance builds trust." It has three points: "In our institutions and government(s)," "In our regulations and policies and that they are responsive to changing circumstances," and "In our information sources."]
I'm sure you've heard it often. Governance builds trust in our institutions, it builds trust in the government, builds trust in firms, and all those that use the information about us. And trust is an essential element of the intangibles economy. It's an element of social capital. We need to know—we need to have trust that firms and people sharing our data, we need to have.... Trust is essential to firms and the people sharing our data. We need to trust the data and how it's being used. And if we don't trust how the data are being used, that may lower trust in our institutions themselves, including government or our social media platforms. And part of trust is transparency in how technology is being used.
[Slide 13 is titled "Data governance: Cross-cutting issues." A segmented circle is split into three sections. The section titled "Core Responsibilities" includes the segments "Economic prosperity," "Public safety and national defence," and "Public health." The section titled "Value-Oriented Objectives" has the segments "Democracy," "Algorithm ethics," and "Privacy." The section titled "Instrumental Ends" has the segments "Sovereignty & Control," "Competition," and "Cyber Security." To either side of the circle are five subheadings, each with a list of questions. They are as follows:
Data Property Rights
- "Who owns the data and what do these data rights entail?
- Who is allowed to collect what data?
- What are the rules for data aggregation?
- What are the rules for data transfer?
- What should the international rules be governing trade of data?
- Is it too soon to encode data provisions in international trade agreements?
- How to establish and enforce new global cyber norms?
- What are the mental health issues, especially for youth, from surveillance capitalism?
- How do we protect citizens, but especially vulnerable groups, from this?
- How do we use surveillance for legitimate public safety purposes but not abused to undermine democratic rights and freedoms?
- Who owns the data and what do these data rights entail?
- Who is allowed to collect what data?
- What are the rules for data aggregation?
- What are the rules for data transfer?
- How can data strategies better support innovation outcomes?
- What are the individual firm and collective capacities needed to capitalize on this?
- How to select industries and sectors to support?"]
So, this is a big slide, and I hope you've had an opportunity to look at it. I don't plan to go through it in detail, but I think one of the main points here is it may be surprising just how crosscutting data governance is. We've divided it up into five areas and they're not mutually exclusive. For example, when you look at Data Property Rights and Cyber Security. What I thought I would do is to give you an example, and that example is something very topical, and that's digital contact tracing. And I'm going to make three heroic assumptions with the technology. First, that it works as intended, that it accurately identifies those at risk, and that sufficient people sign up for whatever the app might be. But even then, even if all those three things were true, there's some profound issues around the collection of personal data.
So, starting with Data Property Rights, what rules are there about how contact-tracing data would be collected, stored, cleaned, used, anonymized, transferred, transformed, or destroyed? And if you consent, what if you want to withdraw consent? How would that work? Who should make these rules and enforce them? The Office of the Privacy Commissioner has put out a framework in this area. But I think the OPC has also recognized that legislation around privacy is not up to the task of the digital age.
Global Governance. Who should make the international governance rules for apps, especially if the data go across borders, which is likely to be the case? How could we ensure that the data respect our legislation, such as PIPEDA?
Social Good. What else might be revealed by a contact tracing? Might it reveal something about your physical or mental health, and would you want that shared? Should we allow data to be stored by gender, age, and race to help evidence-based research? Or could this lead to racial and other types of profiling, particularly if the data are not destroyed after the pandemic?
With Cyber, do people fully understand the right cyber risks associated with the use of an app? Would they unknowingly give away important information about themselves or about others? And then finally, clearly, contact tracing data is extremely valuable, it has… commercially and, you know, could help improve vastly health care delivery and outcomes. But, of course, it would be even more valuable to social media platforms that could use it to enrich their data troves, which enhances their market position.
[The next slide is titled "Data governance raises trade and geo-political tensions." A map of the world is displayed. The USA is highlighted, with text overtop reading "Open Data Flows" and "De Facto National Champions." Europe is also highlighted, with the text "Strategic Regulations" and "Standards and regulation, data-rights regimes, and competition policy." China is highlighted as well, with the words "National Firewall, National Champions," and "Digital Belt and Road." Below this map is a quote: "Ai brings new opportunities for social construction… AI is a disruptive technology with widespread influence that may cause: transformation of employment structures; impact on legal and social theories; violations of personal privacy; challenges in international relations and norms; and other problems. It will have far-reaching effects on the management of government, economic security, and social stability, as well as global governance." The quote is attributed to "China's New Generation Artificial Intelligence Plan released in 2017 (as translated)."]
Now, lined behind data governance is, in fact, a host of trade and geopolitical issues that we actually do see being played out on the world stage right now. Starting from the left, we have the U.S.A., where open data flows get enshrined in trade agreements such as USMCA or CUSMA, as we call it, and force the data to flow back to their de facto national champions that are lightly regulated and which reinforces their market power. We have the EU data realm, which doesn't have national champions, but instead focuses on strategic regulations to rein in the market power of platforms and promote individual rights through its General Data Protection Regulation. We have China and its Great Firewall, with full data localization and a massive database of its citizens that can be used to create national champions. And this is broadly consistent with its Made in China 2020 initiative to become a more innovative economy. And as part of that, it's also trying to become a leading standard-setter, which allows it to embed its technology in a standard and disseminate its values globally through the standard, which it is doing right now through Belt and Road and by its dominance and standards for facial recognition. And these and other issues have all become flashpoints, particularly with the United States, as what I've referred to before, the underlying issues in their trade disputes.
So, where does Canada fit in? Well, we're subject to both U.S. rules via our recent trade agreement and to the EU via GDPR. And we're impacted by what China does via their own developments in technology, via their influence and standard setting, via the geopolitical tensions that have emanated from their global rise, via their implicit standards setting via Belt and Road, and so on. So, what does all this mean, how do we build this prosperous economy that, that we want for ourselves and for our children?
[Slide 15 is titled "How to build a prosperous economy: then and now." There are two columns, each with a list of national, cooperatives, and social infrastructure. The column on the left is titled "Era of traditional infrastructure." Its sub-points are as follows:
- Energy (hydro dams and transmission, pipelines, nuclear reactors)
- Communications (Bell TransCanada Microwave, Telesat Canada Satellites)
- Culture (CBC, Canadian Content rules)
- Global institutions (UN, Bretton Woods, NAFTA)
- Financial (credit unions)
- Energy technologies (AOSTRA SAGD, CANDU Reactor)
- Universal education
- Labour regulations
- Environmental regulations
- Social welfare programs
- Socialized healthcare
- Canada Pension Plan
The column on the right is titled "Era of Intangibles (Digital, IP, Data)." Its sub-points are as follows:
- Updated FDI and trade strategies
- Updated research funding strategies
- Updated Competition Bureau regulations
- Domestic media/content strategies
- National data strategy, cyber strategy, and IP strategy
- Strategic procurement
- Digital Stability board (DSB) for international digital governance
- Data trusts (energy, mining, forestry, agriculture, cities, healthcare)
- Patent cooperatives (key vertical sectors, key horizontal technologies)
- Digital standards for data, AI, platforms
- Data governance to protect private & personal autonomy
- Data governance regulations to protect elections/democracy
- Utilize tax code to address externalities from digital realms
- Future of Work (social programs, education)."]
I'm going to focus on the right-hand side of this chart. And in fact, there are a lot of initiatives going on both in Canada and globally in all of these areas. I'll just make three points here. Using data governance lens as a focus, Canada needs to continue to review and update legislation and regulation on privacy, cyber, competition, and national security. We need to identify gaps and linkages, and address them in an integrated way. Governance is a strategic advantage for Canada. We need to set standards for the big data value chain, for data, for the artificial intelligence algorithms and the platforms that use them, and tackle associated issues, such as bias and the ethical use of these technologies, surveillance, capitalism and others. We need to build upon the efforts already underway, such as the Government of Canada Directive on Automated Processing, and incorporate the many initiatives that are underway here and elsewhere.
We need a strategic focus on standards and embed our values and our technology into standards and export them to the world. This is an essential element of our competitive framework and complements regulation and legislation that typically lag. And we need to think of different types of governance arrangements from open data, which the government already is doing with this public data, to data trust and collaboratives, and the underlying principles and legal and regulatory structures that are more suitable to different types of data. And we need new international rules of the game for data trade, foreign direct investment, intellectual property, and we need rules that don't favour large incumbents.
As Dan has noted in his work, data are not trade ready. So, for example, in recent testimony to the House Committee on International Trade, I indicated how trade commitments made in CUSMA, related to data and intellectual property, have very wide-ranging repercussions in many forward-looking areas, including our ability to harness data in new technologies such as AI, as well as fundamental domestic policies related to privacy, security, intellectual property investment, competition, and innovation. So, Canada could push to have a full-fledged WTO negotiation around to tackle this issue, and Canada could also push for the creation of a new global organization to set international governance for the data-driven economy, something we've called a Digital Stability Board.
[Slide 16: "Canada's Digital Charter essential." There are 10 points beneath the title:
- "Universal Access
- Safety and Security
- Control and Consent
- Transparency, Portability and Interoperability
- Open and Modern Digital Government
- A Level Playing Field
- Data and Digital for good
- Strong Democracy
- Free from Hate and Violent Extremism
- Strong Enforcement and Real Accountability."]
Now, Canada has a framework in place, and it's called the Digital Charter, and hopefully you're familiar with that. I think here what I would say is that governance for the intangibles economy represents both an enormous opportunity and an imperative for Canada. We're not part of the data realms that I just discussed and, in fact, nor are most countries, even though we are affected by those realms. We need to chart our own way. And that path is one that other countries may want to follow as well.
[Slide 17 is filled with white text on a black background. The title is "Mandate letter to Minister Bains." The text reads, "Work with the Minister of Justice and Attorney General of Canada and the Minister of Canadian Heritage to advance Canada's Digital Charter and enhanced powers for the Privacy Commissioner, in order to establish a new set of online rights, including: data portability; the ability to withdraw, remove and erase basic personal data from a platform; the knowledge of how personal data is being used, including … the ability to withdraw consent for the sharing or sale of data; the ability to review and challenge the amount of personal data that a company or government has collected; proactive data security requirements; the ability to be informed when personal data is breached with appropriate compensation; and the ability to be free from online discrimination including bias and harassment."]
Finally, I took this from the mandate letter to Minister Bains and I thought that letters that were also issued to Justice and then to culture—Heritage and Culture—were very indicative because what they emphasize is the importance of putting in place rights around the online, or what we refer to as a data-driven economy. The letter recognizes that it requires substantial coordination across departments, and I think, hopefully, it's clear that the efforts and coordination actually go well beyond what is listed here.
["The slide is titled "CIGI related work and more at www.cigionline.org." Images of four books are displayed. They are Data Governance in the Digital Age, Governing Cyberspace during a Crisis in Trust, Models for Platform Governance, and Modernizing the World Trade Organization.]
Bob Fay: And these are some of our publications that you can find, our recent work and the work we've done in the past related to data governance. So, thank you very much. And I think I'm going to pass the floor back to Taki now.
[The slide is replaced with a black screen.]
Taki Sarantakis: Thank you very much, gentlemen. So, the tremendous presentation, tremendous themes of the utmost importance for Canada's public service and for the people that are watching us and listening today.
[Taki and Bob's video windows reappear.]
And as we noted, this is the first of a series. So, I know we touched on a lot today: data, privacy, connectivity, domestic, international, intellectual property. All of those things we will be talking about in greater detail going forward throughout the series. But that was a wonderful, wonderful introduction.
[Taki's window is pinned so his face fills the screen.]
So, I want to start a little bit. The first theme I want to poke a little bit with you is, Dan, you talk a little bit about the winner-takes-most economy, and that's something that, this is one of the first times in history, if not the first time in history, that we're seeing this.
[Dan and Bob's videos appear alongside Taki's.]
And, you know, in the past, if you were kind of like number two or number three or number four in a particular industry or a particular sector, you could make a nice living if you were Pepsi to Coca-Cola or if you were Chrysler or Ford to General Motors or Labatt's to Molson, you could make a nice living. But now, if you look at the world and kind of the emerging platforms that have established themselves very suddenly and very forcefully, almost without us even noticing it, something really interesting is happening. So, Facebook is number one in social networking. YouTube is number one in video sharing. Who is number two? Google is number one in search engines. Who is number two? Airbnb is number one in property sharing. Who's number two? Amazon is number one in online shopping. Who's number two? The answer for all of those is the same. The answer is, who cares? If you're number two in social networking it's like one hand clapping. If you're number two in search engines, you're like the proverbial tree in the forest that falls and nobody's there to hear it.
[Bob and Dan chuckle.]
So that's very different. It's very different for people to kind of get their heads around that. So, kind of, what's the role for Canadian companies in a world where if you're not number one, you probably in some industries don't even matter? Where should we be focusing? I know it's a big question to start us off, but I'm really intrigued by this notion of winner-takes-most.
Dan Ciuriak: I'll jump in here.
[Dan's window is pinned, filling the screen.]
First of all, what can observe that the data-driven economy, knowledge-based data-driven economy nonetheless is contestable. Recall when Yahoo! was the big thing, when, you know, America Online was the big thing. Remember when MySpace preceded Facebook? So, it is a winner-take-all economy, and it creates temporary monopolies where number two really doesn't matter, but nonetheless it's a contestable space. Today, we have new products like TikTok, some emerging from almost nowhere and then gathering massive amounts of market share. And Shopify, as you mentioned, is a really new kid on the block and yet has gone to global dominance. So it's still a contestable space and the key thing for Canada is to maintain that cohort of start-ups with brilliant new ideas. But then we have to really get on the behind them and scale them up, and that's where our shortcoming has been. So, I think we can forge a spot in this economy and recognize that…
[Dan's audio becomes choppy. Taki and Bob's videos reappear.]
Taki Sarantakis: Bob?
Bob Fay: I missed the last part of what Dan was saying, but perhaps somewhere along the lines of, you know, Shopify is a great example because they saw a market niche and they exploited it, and it's provided profound, profound benefits to a lot of the companies that in Canada, that Canada can actually use, Canadian SMEs can use to help them scale as well. So, it's a really good example.
[Bob's video window is pinned.]
I think the other issue is the importance, you know, we talked about the importance of intellectual property and that these firms, as they scale, they also protect their IP and make sure it's not given away inadvertently or via other means. And that's an area that's typically been weak in Canada. I know that the Canadian Patent Office has launched an education program. CIGI has done this in the past to try and help companies really understand the nature of IP, the importance of IP, and provide the technical advice for them to keep that IP.
[Taki and Dan's windows reappear.]
Taki Sarantakis: That's great. For those of you watching along, you can ask questions. There is a button on the top right-hand of your interface where the hand is raised. And if you push that, you can ask your question and they'll get fed through and we'll answer a few questions at the end.
The second is, I want to talk a little bit about jobs and these platforms. One of the characteristics of these platforms is they don't actually employ a lot of people. And if you think back to the giants of the past, of the earlier kind of industrial or the tangible era, and you talked about a General Motors or a Chrysler or an Imperial Oil or an Exxon, they employed hundreds and hundreds of thousands of people. And you look at Uber. And Uber, with the pandemic, cut a quarter of its workforce, and a quarter of its workforce was only 3000 people. And Airbnb also recently cut a quarter of its workforce, and a quarter of its workforce was less than 2000 people. So, these massive companies with multibillion dollar valuations have, relatively speaking, no jobs.
So, where are we going to be working in the future as a public policy analyst and as somebody trying to guide Canada through these turbulent waters? What would you tell the public policy analysts here to advise their ministers? Because we're always taught, or we've been taught through kind of school and through our careers in the government of Canada that you need the ribbon-cutting ceremony and you need the sign and the X number of jobs. But when an Amazon and a Google and a Facebook come into town, sometimes, actually, they don't create jobs and sometimes they even take away the local jobs. What are your thoughts on that?
Dan Ciuriak: I can jump in here with a first comment and then let Bob finish up here, but I would say that, first of all, trade economics tells us that human beings will have their comparative advantage. So, there will be jobs. However, the share of income going to humans has got to decline because as machines increasingly take over—and we're talking artificial intelligence, or what I call machine knowledge capital—rents will have to go to that to the owners of those. And what we've seen over the past, since the beginning of the knowledge-based era, where previously the labour share of income was flat, stylized fact, it was flat. It then started to erode. And as the deeper we get into this knowledge-based and data-driven economy, the smaller the share of labour income is. So, market will eventually assign jobs to people, but they will be not so well paid, and we will have an income distribution issue primarily, as opposed to a jobs issue. Bob?
Bob Fay: Maybe I can be a little bit more optimistic than Dan.
[Dan and Taki laugh.]
Our competitive advantage is our brains, right? And our ingenuity, our creativity. These are things that that that AI doesn't have. And I like to think of this new technology as complementing us, and I think there's going to be a whole new set of jobs out there that we can't even predict today. There's jobs today that we didn't even know existed, that we wouldn't even imagine existing 10 years ago. But I do think Dan hit on a really important thing, and… take the point you raised Taki, that you know, a lot of these people, well, not very many people were laid off comparatively relative to what we might have seen in previous downturns. But of course, it really has affected certain segments of the population much more than others. And I think the broader issue is more the rents that Dan is talking about, and their distribution. And making sure we have a safety net that people can, that people can rely on. And we've seen those gaps in action in this pandemic. They're not going away. We really have to think those through. I know the government is thinking those through, we've got to continue to think this—to think about that. And going back to the creativity, the things that people are really good at. Well, is our education and skills training system set up to deliver that? It's an open question. I have my views, but I'll leave it there.
Taki Sarantakis: Yeah, one of the things I always tell people who ask me about, "how can I get ahead in my career and how can I be a better contributor to the Government of Canada?" I always say to them, you know, the only competitive advantage that you have today is your capacity to learn something faster than the person beside you. Because when I started in the Government of Canada in 1997, I was kind of valued for what I knew. But now, when little kids from all over the world can walk around the world with the totality of human knowledge in their pocket, the relative value of the knowledge in terms of where it's stored is down to nothing. It's, what do you do with that? How do you make it interesting? How do you tell a narrative around that? How do you link something that's disparate between A and B together to make it something that adds value as opposed to just statically knowing a fact.
We have a question now from the audience. And it's a question that really touches—I think it gets right to the heart of the matter. You talked a little bit about the difference between the domestic and the international and how, in some ways, the domestic doesn't matter anymore, but in other ways that domestic matters dramatically. And the pandemic has illustrated that very, very well. I don't think you would have ever, more than two months ago, have imagined a scenario where the president of the United States is musing about putting troops on the Canada-U.S. border or countries are basically saying "You will not export masks," or "You will not export ventilators." So, we were coming together and then going apart dramatically. And the question from the audience really gets to this. And I'll read it because it's really profound in terms of, as public policy analysts, what are we going to do?
And the question is as follows:" As a middle power country, how can Canada take steps to start protecting and benefiting from our IP without damaging our trade flows and cooperation from the rest of the world?" And I'll put the question a little bit differently in a couple of respects. First, we're small, right? In the world today, maybe the world from the beginning of time, it's the big people that write the rules and we're not big people. So, number one, what's our role as a little person amongst giants? And number two… Canada, we always love to say that we are a middle power and we punch above our weight and we will work through international institutions. Is that still the path forward for our little country north of the 49th parallel?
Dan Ciuriak: Well, again, I'll jump in first. First of all, on the—on prospering in this particular economy, we account for, what, 2 or 3 percent of global GDP?
[Dan's window is pinned.]
We only need to capture about 2 or 3, maybe 5 percent if we're greedy, of the valuable IP. So, what matters for us is that when we, as a government, fund research and development to develop a vaccine or to develop some other product, that we don't wind up giving away that IP to a foreign country. That it resides here…
[Dan's audio becomes choppy.]
…that the owners of that IP who are accumulating the rents [inaudible].
[Taki and Bob's windows reappear.]
Taki Sarantakis: Bob, how about you jump while Dan is buffering?
Dan Ciuriak: …acquisition of [inaudible]. Am I breaking up?
Taki Sarantakis: Yeah. We've got to get you if you're on Rogers, we've got to get you Bell. If you're on Bell, we've got to get you Rogers.
[Bob and Dan laugh.]
Dan Ciuriak: Bob, you take over.
Bob Fay: OK, well, I maybe I'll go down a different road from where I think Dan was going, and that is, actually, Canada has a very large role to play.
[Bob's video fills the screen.]
If you go back to the data realms slide that I had put up—well, as I mentioned, most countries in the world actually don't fall in those data realms. We're subject to them in more than one way, and I think a lot of those countries that aren't in those data realms are actually looking for leadership. And Canada is well placed to do that, we're a well-respected country, we're well respected for our frameworks in particular; and if there's a place where a framework is just gasping for air, it is the digital economy. And we've got the brains, we've got people developing these technologies, that know these technologies. We have a great public service at the federal level across the country. You know, we actually have all of the requirements to set the governance and export that governance. And as we export that governance, for example via standards, we're embedding our technologies, we're embedding our values. So, Canada, there's this enormous opportunity for Canada. And, you know, I think what we're trying to do at CIGI is encourage Canada to do it, to take that up.
[Dan and Taki's windows reappear. Taki's mouth moves, but no sound comes out.]
Well, now I'm having issues and I can't hear Taki.
[Taki mouths, "oh."]
Taki Sarantakis: The issues are my inability to press the unmute button.
[Dan and Bob laugh.]
So, I'll go back to being kind of an old school, traditional Government of Canada official, you know, from the '50s and the '60s and the '70s. And I'll say to you, "oh, this is all very interesting. But, you know, this is it. This isn't really where Canada should focus on. We're resource rich. We have, we're 2 percent of the world economy and less than 2 percent of the world's population, but we have a quarter of the world's fresh water. We have a disproportionate share of forests and resources and oil. And as a civil servant, it's my job to make sure that the extraction economy continues to punch above its weight because we have been blessed with an abundance or an overabundance of natural resources and as an official in the Government of Canada, it's my job to make sure that the tangibles economy continues to punch above its weight." What would you say to that?
Bob Fay: I'll start with this one, because it reminds me of a conversation that we had when we were talking to some people in the government.
[Bob's window is pinned.]
And I think the question went, you know, we were talking about the intangibles economy. And the question was "Well, but all the issues, you know, we're fighting with the U.S. on right now. It's steel, it's cars, using national security. These are the battles we're fighting right now and you're talking about intangibles. What's going on here?" And the way I tried to frame it is that one, we need trade agreements like we've signed to protect our tangible sector to help it get its scale. You know, the things that we relied on in the past. But we need a shift in policy towards intangibles because that's what's going to drive growth. And that's the way I think about it. We need to encourage what's there and make it better, but what's going to drive growth are these intangibles. And to take the oil sector or agriculture as examples, well, they're becoming data driven, they're becoming intangibles. And they use data analytics that I talked about, well they're helping drive growth in these sectors. So, the tangible is becoming intangible as well, and we've—this is a thing that we've got to keep in the back of our mind as we look forward down the road. And these things are going to help improve the productivity of these sectors, hopefully lower their carbon footprint and a whole bunch of other things as well.
[Taki and Dan's windows reappear. Dan's mouth moves silently.]
Taki Sarantakis: Dan? Mute button, Dan.
Dan Ciuriak: Yeah, not too much to add to that. The one point I would make is to recall why Canada named its trade minister the Minister of Trade Diversification. We are a resource-dependent economy, but those resources are essentially the same ones which the Americans also have. And when push comes to shove, they put the protection on, and so we need to really also focus on diversification, and a lot of that's going to come from the new knowledge-based economy.
Taki Sarantakis: Gentlemen, we are down to our last minute. What a wonderful, wonderful introduction to our new series. As I mentioned, a lot of themes for us to explore during the next 8, 9, 10 sessions. Intellectual property, data, privacy, trust, domestic, international. What a privilege and a pleasure it has been to listen to both of you today, for some of us to reinforce some ideas that are emerging, but for others to introduce them to a new way of thinking, because a lot of this is very new to Canadians and to public policy analysts. And it's important that we start understanding the dynamics of what is driving the economics of the contemporary era. But also, as you hinted at, the geopolitics.
And I think one of the things that we're noticing—I started off the session by talking about the historian, the quote from Yuval, the historian, about how the pandemic is pushing the fast-forward button on history—that we are seeing the re-emergence of geopolitical considerations to an extent that none of us have seen in our lifetimes. In the post-World War II era, the geopolitics have been going one way and we are now seeing them go another. And how Canada navigates this epoch will define our future economically and otherwise for a long, long time. So, avec ça, it was a great, great pleasure to host you today for the first in our series. Thank you again and we look forward to the future sessions between the Canada School of Public Service and CIGI. Thank you again. Bye.
Bob Fay: Thank you, everyone.
Dan Ciuriak: Thank you very much. Apologies for the quality of the audio.
[Dan, Bob, and Taki chuckle. The Zoom call fades out. The animated white Canada School of Public Service logo appears on a purple background. Its pages turn, closing it like a book. A maple leaf appears in the middle of the book that also resembles a flag with curvy lines beneath. The government of Canada Wordmark: the word "Canada" with a small Canadian flag waving over the final "a." The screen fades to black.]