The Innovation Imperative

So, how do we get around this problem? Professor Peter Drucker, a leading American business theorist, observed recently that the new key economic resource is knowledge, not land, labour, or capital. Firms, industries, regions, and countries thrive or languish depending on how they use knowledge. Specifically, an economy thrives when knowledge is created, combined, and recombined. Innovation drives economies.

Innovation is not just investments in the next hog plant, the next variety of a crop, or the next grain elevator. It is a continual process of trying out combinations of new and existing knowledge. Innovation involves sustained development, adaptation, and adoption of new technology, products, markets, and organizations.

Farmers know the value of innovation instinctively from their own experiences. They are perpetually tinkering, assaying, and experimenting with new ways of doing old things, or with adapting and adopting new technologies, developing new products, or tapping into new markets. Western Canadian farmers, perhaps not surprisingly, are among the single largest group of private inventors in the country who file for patents for their new ideas.

While most farmers are innovators, that orientation is not currently reflected in the public policy structures around farming and the agri-food supply chain. Instead of valuing, supporting, and celebrating successful innovation, the agri-food industry spends a rather large amount of time talking about how to manage or limit change.

Many of our institutions are explicitly designed to stifle new products, ideas, technologies, institutions, and processes. The challenge, then, is to find ways to unchain diversity. That does not necessarily mean ending some of our long-term monopoly structures, such as the Canadian Wheat Board, our monolithic concrete grain elevators, or our kernel visual distinguishability (KVD) rules for new seeds. They are all symptoms of the problem rather than its root. General Canadian policy has long gravitated towards monopoly solutions to complex, heterogeneous problems. We have one-size-fits-all systems of grain handling and transportation, and local, regional, and sometimes provincial food processing monopolies. We tend to invest large amounts of our available capital in a disturbingly small range of options. And once we have made our investments, we defend them vigorously against new market entrants.

The problem is that we are not in the business of change, but of managing change. We like to do things in an organized, “rational” way. But management of innovation is an oxymoron. Innovation by nature is chaotic. It only truly thrives where there are competing models, structures, ideas, investments, and organizations.

As it stands, looking to the international marketplace, we are unlikely to predict what our opportunities will look like in 2015 or later. Lacking clear insight, the wisest approach is to try a lot of smaller strategies, accepting that some will succeed and a lot will fail.

So, what is necessary for success in an innovative world?

First, we need to create room to innovate and try new things. We lack that space in many parts of western Canada. We frequently set rules that require bringing only one option to the table, be it in our communities, provinces, the western Canadian region, or the larger country. Monopoly solutions strangle innovation.

Second, we need to reward innovation. This requires examining the entire public policy framework and supply chain. Too often we spend an unjustified amount of time worrying about who loses in any change, then seeking ways to tax the winners and subsidize the losers. While some redistribution may be necessary, it should not be the prime focus. In almost all cases of innovation and development, a cost-benefit analysis at an early stage of innovation will not produce adequate returns to fully compensate losers, at least not in the short term. Almost every new product, technology, process, organization, and market will undercut somebody else’s value. If the winners always have to compensate the losers, it acts as a deterrent to innovation. Experience shows that the biggest gains from innovation accrue to early adopters. If we discourage their behaviour, we will forego real benefits.

Third, we have to find a better way of failing. Innovation inevitably delivers numerous failed experiments. Currently, we spend an inordinate amount of our time, energy, and financial capital examining why we lost and trying to attribute blame. We often end up actually adding to our losses by stranding capital. Rather, we should be trying to find ways to efficiently and effectively release and recycle resources from failed enterprises. Accountability is important, but it becomes counterproductive if it ends up dissipating the value left in the investments.

So, what does that mean for public policy?

First, we need to find a way to allow greater diversity in our policies. Canada’s Agricultural Policy Framework and its five pillars are fundamentally correct and exactly where we need to be in the twenty-first century. The problem is that in seeking to implement policy, we are trying to find single solutions to complex, heterogeneous problems. For example, there is a push to create a single quality assurance system for Canadian agricultural products. But one size will not fit all, for there are multiple markets out there and each one demands different standards of performance, conformity measures, methods of traceability, and guarantees of assurance. While one might conceivably identify or develop a common set of principles to drive our quality system, we will necessarily need a wide degree of diversity in implementation to both satisfy the divergent market needs and earn a return on our investments.

Second, we need to break down our conventional conceptualization of the western Canadian agri-food industry. We still tend to think of the industry as a disconnected set of actors that are divided into classes of farms (grains, oilseeds, animals, dairy, or fruit and vegetable), involving disconnected supply chains (suppliers, processors, handlers, marketers, and retailers), and located in specific regions (the four provinces). Our policy structures reflect that view. As a result, we end up subdividing what is actually an extremely small national marketplace for technologies, products, process, and institutions, ultimately dissipating or underutilizing many of our resources. When I talk to biotechnology companies, they tell me that their natural market area is the prairie basin (or, ideally, the Great Plains region of North America). Anything that makes it more difficult to access and serve that natural market area reduces the returns on their investment and causes them to look elsewhere for better opportunities. Local farmers and firms tell a similar story.

There is no single, simple solution. Rather, we need to open up our thinking and our systems to allow diversity and seek out new processes, products, technologies, and institutions. A first step might be to adopt a portfolio model of policy development and public investment in the agri-food industry, investing five or ten percent of our time, energy, and resources in new and different areas. Our farmers know the value of trying new things. We only need to approach our public policies with the same degree of openness to change.

This blog entry was authored by Peter Phillips, a professor in the Department of Political Studies at the U of S. To read additional Illative Blog entries or to leave comments on this entry, please visit www.illativeblog.ca. The Illative Blog is an initiative by the Knowledge Impact in Society (KIS) Project based out of the University of Saskatchewan. Email correspondence can be sent to kis.project@usask.ca