A knowledge-based economy (KBE) is defined as an economy that is directly based on the production, distribution, and use of knowledge and information. Knowledge is now recognized as the driver of productivity and economic growth, leading to a new focus on the role of information, technology, and learning in economic performance. In the last decade alone, rapid developments in science and technology have had a major impact on our society and the way we live. For example, the Blackberry has evolved into an essential business tool, while the iPod has changed the way in which digital content is delivered. Advances in genetics, biotechnology, and nanotechnology have rapidly enhanced medical science. Increasingly, both advanced and emerging economies are becoming more dependent on knowledge, information, and high-skilled workers to improve their productivity and raise their standard of living. The past decade thus provides an insight to the challenges Canada will face in the next decade, when we celebrate 150 years of Confederation in 2017.
In the upcoming decade, advanced economies will have to wrestle with the legacy of large budgetary deficits from the current economic crisis, adjust to new inno va tions, mitigate the impact of climate change, and face strong competition from emerging economies. As Canada’s population ages and declines relative to worldwide population growth, productivity growth will require new policy solutions. It is within this context that our group has chosen to focus our policy analysis on maximizing Canada’s engagement in the global knowledge-based economy.
Our Vision for 2017
Our vision for 2017 calls for a Canada that is known as the “Northern Tiger” due to our prowess in productivity and innovation. In the coming decade, Canada will have seen the largest growth in productivity of any developed economy. By leveraging Canada’s advantages as an open economy which supports free trade, a diverse and innovative society, a strong regulatory framework, and capacity for research and development (R&D), Canada will be seen as an attractive country in which to invest. By raising the average skill level of Canadians, we will be better prepared to transition into new jobs and markets that currently do not exist and thereby transform traditional Canadian industries through the uptake of technology. The managerial and entrepreneurial skills of Canadians will be recognized internationally. Venture capital markets will be well developed and will play a vital role in commercializing innovations from all sectors of the economy. Products from Canadian firms will eventually become household names across the globe. Canadians will also realize that govern ments, industries, and regular citizens will all have to collaborate to lead the regulatory process at home and abroad in order to serve both the public interest and Canada’s competitiveness on the global stage.
Context and Scope
Modern economies are becoming increasingly dependent on knowledge, information and highly-skilled workers to improve their productivity, raise their standard of living, and address the uncertainties stemming from innovation, science, and technology. Globalization has already shown that industrialized nations such as Canada cannot out-compete emerging economies in terms of labour and production costs. In addition, the current economic crisis has created an urgent need to address Canada’s long-standing issue with relatively poor productivity growth. According to a recent assessment report by the Council of Canadian Academies, improving pro ductivity growth is important because it fosters higher standards of living.1 The report notes that, “since 1984, relative labour productivity in Canada’s business sector has fallen from more than 90% of the level in the United States, to about 76% in 2007. Over the 1985-2006 period, Canada’s average labour productivity growth ranked 15th out of 18 comparator countries in the OECD.”
Therefore, in order to overcome the problem of poor productivity, policy makers will have to look at policies that create a sustainable competitive advantage for Canada. In 2005, the Organisation for Economic Co-operation and Development (OECD) described the global knowledge-based economy as “trends in advanced economies towards greater dependence on knowledge, information and high skill levels.”2 It further noted that “knowledge and technology have become increasingly complex, raising the importance of links between firms and other organizations as a way to acquire specialized knowledge.” As such, we will examine Canada’s productivity challenges through public policies that foster a culture of learning, academic and scientific excellence, collaboration, and strategic business development and growth.
In terms of scope, the knowledge-based economy must permeate all industry sectors, including traditional Canadian industries such as mining, agriculture, forestry, and tourism. Innovations in developing the oil sands have created Canadian expertise in resource extraction but further (and greener) innovations in our traditional industries can contribute to building a competitive and sustainable economy. Similarly, discussion on the knowledge-based economy must also include a broader perspective regarding education. Although post- secondary and graduate degrees are desirable to support advanced R&D, participation in the KBE will require Canadians to possess higher basic skills in literacy, numeracy, and critical thinking. All Canadians will need the right education, training, and skills to navigate, work, and engage in an increasingly demanding world.
Finally, for the purposes of this analysis, we will not be focusing on current government initiatives, as they address more immediate policy gaps that have already been identified. Instead, we will look towards the year 2017 and what steps need to be taken now in order to achieve our vision for Canada in 2017. Also, in terms of horizontal linkages, we would like to note the excellent work being conducted by the other groups, such as “Competing in a Multi-Polar World” and “Untapped Power from Beyond the Margin”. We would encourage future work on how our issues intersect and the identification of synergies between their policy recommendations and ours.
Key Policy Issues
In order to achieve our vision for Canada in 2017, we will need to look beyond the traditional factors that have sustained our economy in the past. Although labour force growth has helped Canada increase its productivity, an aging population means that improved labour productivity will be required as the number of workers in the labour force will continue to diminish and immigration alone will not be able to fill this gap. In addition, reliance on natural resource exploitation is not sufficient, as volatile commodity prices on the global market create instability and environmental considerations have become a priority that cannot be ignored. Thus the following change drivers provided the basic assumptions for our group:
- the rising power of emerging economies;
- the accelerating rate and capacity for change from advances in science and technology;
- demographic issues presented by an aging society; and
- the increasing pressure to reconcile environmental and economic considerations in productivity growth.
Having considered these change drivers and the current socio-economic context, we identified the following key policy questions as the basis for analysis as to how to maximize Canada’s engagement in a global knowledge-based economy:
- how to create the necessary leadership and support for the innovation and commercialization of new ideas, research, and technologies;
- how to develop, attract and retain highly-skilled and qualified human capital to further develop the Canadian economy; and
- how to achieve stronger and more versatile regulatory systems that help foster innovation and competitiveness.
Innovation and Commercialization
Innovation is “new or better ways of doing valued things” and is not “limited to products but includes improved processes and new forms of business organization.”3 Innovation is a fundamental part of the knowledge-based economy since it is, directly or indirectly, the key driver of labour productivity growth (increased output per hour worked) and thus the main source of national prosperity. In order to foster greater innovation and compete with both advanced and emerging economies, Canada will have to create policy solutions to address the following issues that are indicative of a knowledge-based economy:
- Research and Development (R&D): Investment in R&D is a key indicator of government and private sector efforts to promote science and technology. According to the OECD, member countries invested on average 2.3% of GDP on R&D in 2006. This figure includes investments by all resident companies, research institutes, and university and government laboratories. It excludes R&D expenditures by domestic firms where the work is performed abroad. In 2006, Canada’s gross domestic expenditure on R&D as a percentage of GDP was 1.94% whereas for the United States it was 2.66%. Not only is Canada well below the OECD average, but long-term trends indicate that our R&D expenditures are decreasing: Canada spent 1.73% of GDP on R&D in 1994 and, while this expenditures rose to 2.09 percent in 2001, since 2001 R&D investment has been unquestionably decreasing, reaching 1.94% in 2006 and 1.89% in 2007. This trend must be reversed as investments in R&D by both the private and public sector will continue to be an important aspect of the knowledge-based economy.
- Intellectual property rights: Ideas, designs, and creativity are key to a prosperous and thriving society. A brisk and orderly exchange of ideas is as important to our economy as the flow of money or goods and services. For this exchange to occur, a strong intellectual property framework that encourages businesses to invest is required. Businesses are reluctant to invest in soft regulatory markets because their innovation will not be protected. The OECD uses the number of patents filed as a measure of innovation, and thus intellectual property also serves as an indicator of a country’s technological growth. Reforms to intellectual property legislation could be one area in which Canada could take immediate steps. However, the challenge will be in finding the right balance between IP protection, and the dissemination of ideas and access to knowledge that spurs innovation.
Innovation Growth by Country
- Venture capital markets: Canada has a relatively young venture capital market which has not fully developed the necessary skills for success.4 There are also relatively few high-technology and science-based companies in Canada when compared to the United States and Europe, due mainly to a lack of access to venture capital available for business development, particularly for Small and Medium Enterprises (SMEs). Thus attracting sufficient capital for SMEs to become self-sustaining will require these firms to demonstrate they have the skills and experience to generate acceptable returns on the initial investment. In this regard, government must facilitate the growth of SMEs by adopting viable technologies produced from these firms at an early stage in the business development cycle. Otherwise, these companies may leave Canada completely since more venture capital is available elsewhere, particularly the United States where there is a more aggressive business mindset and greater access to management expertise. Thus these businesses which start off in Canada may end up going to other more commercially viable markets for further growth opportunities, leaving Canada with no long-term advantage for fostering business development and creating a gap between innovation and commercial success. Similarly, without a mature and robust venture capital market, innovative SMEs that require more seed money to grow are in danger of being bought out by larger multinational corporations and moved outside of Canada.
- Structural changes in the economy: The current economic crisis is serving to accelerate structural changes in the Canadian economy. New jobs that will be created as we emerge from the current economic crisis will likely not be the same ones that are being lost today such as in the manufacturing and automotive sectors. Canada needs to encourage innovation in traditional sectors and add new jobs through innovation and growth in emerging sectors. Roger Martin and Richard Florida propose to “build a shared pros perity for Ontarians by drawing more broadly on the creative skills of our people and workforce, developing stronger clustered industries, and harnessing the creative potential of current and future generations to become a model for generating prosperity in the creative age.”5 In order to accomplish this task, they propose the creation of new jobs in high-value industries and occupations, and shift employment from routine-oriented to creativity-oriented occupations, while boosting the creative content of all work in all industries.
- From basic research to commercial success: Increasing R&D investment alone will not guarantee innovation and increased productivity. In spite of the competitive quantity and quality of highly-qualified personnel produced in Canada, the degree to which private firms and government apply their knowledge resources to innovation and commercialization remains inadequate. For example, the Committee on the State of Science and Technology in Canada stated that “Canada has built significant strength in many fields of research and there is optimism that it is gaining ground in several of the newer areas.”6 Based on survey commentaries, and in the view of the committee, “Canada does less well in converting strength in basic science into sustained commercial success, which is a long-standing deficiency in Canada’s innovation system which requires resolution for the full benefit of Canada’s considerable S&T strengths to be realized.” One explanation for this deficiency is the level of management and entrepreneurial skills in Canada, which will be further analyzed in the next section.
Canada will have a significantly smaller labour force in 2017, given that nearly all members of the baby boomer generation will be 60 years of age or older. Compounding this problem is the fact that Canada’s birth rate decreased 25.4% between 1992 and 2002, and its fertility rate was 1.5 in 2002. In other words, “an aging population in Canada is making productivity growth imperative as the proportion of population that is of working age plateaus and then declines.”7 It will be in Canada’s national interest to ensure that as many Canadians as possible have the opportunity to participate in the workforce, create opportunities for our best and brightest, and allow immigrants to succeed in the modern Canadian economy.
Population Growth by Country
GDP Growth by Country
The ability of Canada’s labour market to supply the skills required by the knowledge-based economy will depend on its capacity to develop and attract the necessary human capital. Key input factors include:
- Partnerships: Linking Sectors (public, private and beyond): Developing cooperative pathways, links, and opportunities between the public sector supply and private sector needs in key knowledge-based markets will help to ensure that Canada develops and keeps its highly-qualified personnel and also attract them from abroad. Organizations are finding they cannot tackle problems alone nor do they have the resources they need to tackle increasingly complex issues in isolation. By utilizing partnerships, organizations can leverage the existing expertise of the private sector, universities or expertise from abroad to meet their objectives. Private companies, particularly SMEs, do not have to rely on large funding investments to become more innovative. Instead, by developing partnerships, companies can tap into existing resources in the academic or public sector to improve their products, carry out R&D and generate economic growth. Similarly, public institutions could create greater incentives to commercialize their ideas generated through R&D by engaging the private sector. In this fashion, Canada’s strength could be based on its networks and partnerships, creating the right environment for attracting bright people and dynamic industries, which can tap into global networks and supply-chains.
- Labour Market Information (LMI): Economists have argued that imperfect information could lead a market to shrink or collapse entirely. Labour market information can both effectively ease labour market adjustments and contribute to public policy objectives. According to Norton Grubb, “the selection of an appropriate occupation is valuable not only for individual purposes but also for the economic goals of increased efficiency, productivity, and competitiveness.”8 Among other roles, LMI plays an important role in improving the efficiency of the education system by increasing information on learning opportunities and raising completion rates.
- Improving the basic skills and competencies to function in an increasingly knowledge-intensive society and economy: Paul Cappon, President and CEO of the Canadian Learning Council, explained in 2008 that “almost half of adult Canadians (48%) are estimated to be below the internationally accepted literacy standard for coping in a modern society. That proportion will remain virtually unchanged over the next two decades, and with population growth, the number of Canadian adults with low literacy will rise from 12 million to more than 15 million.”9 This will prove a considerable barrier to the nation’s capacity to excel in the global knowledge-based economy. Cappon also warned that the “loss of skills among adults occurs at a rapid rate.” Skills, including literacy, that are acquired through a firm educational foundation at school are not retained unless reinforced in homes, communities, and workplaces throughout one’s lifespan, making lifelong and life-broad learning an essential policy objective.
Appropriate regulatory systems are critical in supporting the benefits of innovation to society while managing the potential risks. Regulations are required in order to maintain the health and safety of Canadians, protect the environment, and ensure the viability of the Canadian economy. According to the Government of Canada’s Community of Federal Regulators, “Canada’s regulatory system, though considered innovative and emulated by other jurisdictions in the past, is not keeping pace with emerging pressures and challenges. Canada’s regulatory system must become more effective, nimble and responsive.”10 As the world becomes more complex, Canada’s regulatory systems must evolve in order to meet several challenges, such as:
- Monitoring the safety of products that are increasingly global: Globalization has increased the flow of products between countries and recent high-profile cases, such as the listeriosis outbreak linked to a Maple Leaf Foods plant in Toronto, and tainted products from China, are creating a greater awareness of regulatory challenges in monitoring the safety of products both within and outside of Canada’s borders. This environment of heightened awareness is increasing public expectations of the Government’s responsibility to verify the safety of the products that Canadians use. As the global flow of products will likely continue to increase over the coming years, this will likely be an ongoing challenge looking forward to 2017.
- Designing policies and regulations that foster innovation: New products and services associated with existing and emerging technologies such as information and communication technologies, biotechnology, and nanotechnology are developing at a rapid pace. Often, regulatory decisions cannot be made until years after these products and services are ready to be commercialized. However, it is possible to design policies and supporting regulations that drive innovation. The development of policies and regulations in a predictable manner can contribute to a more stable business environment that can foster investments in innovative and cutting-edge industries in Canada. Regulations must be consistently developed, applied, and enforced according to a known policy direction in order for companies, both domestic and international, to have the confidence to invest in Canada.11
- Effectively engaging regulatory partners: The development and maintenance of effective regulatory systems requires the interaction of many different partners. Within the Government of Canada alone, many departments and agencies must collaborate in order to develop regulations for a specific field. Within Canada, Government stakeholders must be able to network with provincial and territorial governments, industry, academia, non-governmental organizations, and the public. And around the world, Canadian stakeholders must be able to engage stakeholders in other countries, especially as the impact of globalization will make collaboration between countries more important than ever. In regard to Canada’s international position regarding regulations, it is important to note the work presented by the canada@150 group focused on “Competing in a Multipolar World”, which includes the recommendation that Canada become established as a regulatory and standards leader.
There is already a concern that many Canadians lack the basic skills and competencies to function in an increasingly knowledge-intensive society. As a result, many Canadians may lack the ability to understand and participate in the complex discussions occurring on technical, scientific, and ethical issues. In this environment, citizens look towards government for guidance. If the Government does not engage citizens in meaningful dialogue on emerging issues, other stakeholders will frame the public discourse to reflect their agenda. Since public support for or opposition to a new innovation often plays a critical role in its development, the Government must be mindful of the need for effective and proactive Government-wide communications strategies for emerging technologies, and the need for the right spokespeople that can translate complex information and effectively engage the public in meaningful dialogue. For example, in the rapidly evolving field of nanotechnology, experts from both the United States and Canada are calling for governments to act now to assess its potential health and environmental risks. The Government must be clear about its regulatory intent, and keep all stakeholders, including the public, informed of and engaged in future plans regarding this new industry.
In the coming decade, one of Canada’s major challenges will be adapting to a more knowledge-intensive society, especially under the current economic context. From our analysis, it is clear that despite Canada’s policy challenges in terms of innovation and commercialization, human capital and regulatory systems, Canada is well positioned to tackle these problems by turning them into opportunities for improving our productivity and innovation. If we wish to brand Canada as the Northern Tiger of the global knowledge-based economy by 2017, we would recommend the following policy options:
1. Promoting a Knowledge-Based Economy
In order for all Canadians to adapt and succeed in the coming decade, they will need the right skills and competencies required in a society that is increasingly complex. Our first policy recommendation is for the government to develop a National Learning Strategy with the aim of increasing the average competency level of Canadians to participate in a knowledge- intensive society for instance through increasing science literacy, critical analysis, and training in new technologies. This will require collaboration with provincial, territorial, and municipal partners to develop a strategy focused on improving adult learning opportunities, improving language training for new immigrants, and creating incentives at the individual, firm, and industry sector level for adults to retrain, improve their literacy and numeracy, or attain a post-secondary education in their later years. The Government could consider tax incentives, create more spaces for learners in secondary and tertiary educational institutions, as well as encourage the creation of training and certification programs that are recognized across a specific industry. By raising the average competency level of all Canadians, this will create a workforce that is able to adapt to structural changes in the economy in terms of readiness for new and emerging industries, taking up new technologies, and adapting to the rapid pace of change. Also, this will create a more sophisticated and savvy consumer market for innovative products and services. Finally, this would create an impetus to transition Canada’s economy into more creative, greener, and higher value-added activities in both the traditional and emerging sectors. An Interdepartmental Committee on the Diversification of the Economy could recommend ways for the Government to facilitate this transition.
2. Capacity Building
The further transition into a knowledge-based economy will require a critical mass in translating knowledge and expertise to leverage Canada’s existing strengths in producing knowledge. For governments, this will require bolstering the profile of science, technology, and innovation. This can be done at the federal level through the creation of a Department of Science, Technology and Innovation, distinct from Industry Canada. The mandate of this department would be to develop Canada’s science and inno vation policies, review all the incentives and programs that currently exist for R&D and innovation (e.g. national prizes and awards), and enable the early adoption of new and viable technologies. An Office of Commercialization could be created to facilitate the process by which public research transforms into business opportunities for industry. As part of this initiative, the creation of a Centre of Expertise for Venture Capital and a new Venture Capital Fund would be required to provide the necessary seed money to mature the angel investor and venture capitalist market to assist high-risk, high-return SMEs. In addition, we would recommend the creation of a Centre of Management Expertise to address the need to improve the business management skills in both the private and public sector.
In addition to building capacity for entrepreneurship through management, commercialization and venture capital, the federal government will also have to transform its regulatory capacity to become much more inclusive. This will require the utilization of new forums to educate and engage citizens similar to the citizen’s forums used by provinces for propor tional representation or the “nanodialogues” used to engage the public on nanotechnology in the United Kingdom. These forums would be linked to the consultation process, which would include input and feedback from various standing committees representing industry, academia, citizens groups, media, and research institutions. In order to support these new forums and standing committees, governments would utilize new technologies (e.g. Web 2.0 tools) to engage citizens in current and emerging regulatory issues. By further involving citizens and industry in this type of “Regulatory Framework 2.0”, Canada can create stronger dialogue and public capacity to navigate through the complex issues required to protect our health and environment, address ethical concerns, and support innovation in our economy.
3. Innovation Framework
In addition to promoting the knowledge-based economy and building capacity, we also recommend a change in how Canada engages and participates in the global knowledge-based economy. We can see that partnerships between governments, industry sectors, academia and the public will be a key factor to Canada’s success; however, this mindset needs to shift towards building innovation networks within Canada and beyond its borders. Currently, we have seen success in the development of regional and virtual networks in related disciplines, such as innovation clusters like the MaRs Discovery District in Toronto. But to truly engage the knowledge-based economy on a global scale, this will require Canadians to become much more involved in global research projects (e.g. the Human Genome Project) and plug into global value chains. One initial step towards this goal would be the further elimination of internal and international barriers to trade, investment and labour mobility. The aim of innovation networks will be the facilitation of global business relationships and an increase in the flow of human capital to spur innovation and entrepreneurship. At the same time, this will leverage Canada’s reputation as an open, diverse and tolerant society and include innovation in branding Canada. Similarly, Canada should participate and lead initiatives that aim to create global regulatory standards, creating an advantage for Canada’s industries when dealing with new and emerging issues. Thus preparing Canada for the rapid changes to our economy and mitigate the risks from new discoveries and innovations in the upcoming decade.
Implications of this Policy Challenge for the Public Service
Proactive policies are needed to position not only Canada but also the federal public service to effectively support Canada’s role and opportunities in the global knowledge-based economy. Given the change drivers identified in the definition of the policy problem, there are multiple implications for the composition, role and skill sets needed in the federal Public Service:
1. Building, Adapting and Utilizing Knowledge Infrastructure
- The Public Service as a knowledge broker: A new competency will be required where public servants understand both the science/technology and policy worlds to facilitate effective communication and knowledge sharing between science and policy realms to ensure evidence-based policy, regulatory and service development and decision-making.
- The Public Service of 2017 must engage the public through new forms of consultations: This is especially important for regulating new or emerging technologies in order to harness the scientific expertise outside the Government.
- Public servants of 2017 will need to have the capacity to use new technologies when performing their duties: Information technology services will include experts who can manage a new suite of Web 2.0 tools, such as wikis and in-house social networking sites (e.g. the new GCconnex). Direct service providers in fields such as health and tax collection will need new skills in working with electronic tools to perform their jobs (e.g. data management).
- Corporate Memory: Technology should also be used within the Public Service to retain corporate memory, especially in light of the large number of future retirees.
2. Changing the Work Environment
- Explore new work arrangements: The use of technology should enable the Public Service to explore new work arrangements. For example, the Blackberry is making it possible for people to work outside their office, which could enable public servants to have more flexible schedules and potentially better work-life balance. This would change the way we see the office in terms of working from home, the physical work space, and perhaps create a work environment that facilitates more collaboration outside our silos.
- Flexible and modern policies: Modernize human resource policies to allow for flexibility in choosing hours and locations of work that foster the use of technology in the workplace.
3. The Public Service as an Enabler of Innovation
- A model for others: The Public Service should act as a model for private companies in the adoption of new technologies by conducting pilot projects and, where feasible, adopting them on a broad scale.
- Green Innovation: Through its procurement practices, the Government can help to drive the market for green technology. By installing green roofs, retrofitting buildings for cogeneration and installing solar panels, the Government could provide evidence for adopting green technologies, while saving taxpayers money in the long run. In this way, the Public Service can lead by example.
- Research enabler: The Public Service must be an enabler of basic research. Basic research is the foundation upon which Canadian companies can build new technologies and products.
- Facilitator and partner: The Public Service of 2017 must be a facilitator of collaboration. Many SMEs do not have the time or resources to identify potential synergies and partnerships with other companies (domestic or international). The Pubic Service of 2017 must collaborate and proactively seek out partnerships with private companies to foster innovation or provide the platform for those companies to make linkages.
- Working collaboratively across departments: Working groups should be brought together to work on horizontal policy challenges based on expertise and interest, and not on a departmental basis, per se. Centres of expertise whether they be virtual of actual would provide guidance, coordination and contacts for people on work that has already been done and also provide opportunities for greater collaboration. The key is that access to information and people would become transparent.
- Council of Canadian Academies. 2009. Innovation and Business Strategy: Why Canada Falls Short. Expert Panel on Business Innovation. Canadian Council of Academies. Ottawa. Available online
- Organisation for Economic Co-operation and Development. 2005. “The Measurement of Scientific and Technological Activities: Guidelines for Collecting and Interpreting Innovation Data: Oslo Manual, Third Edition.” Prepared by the Working Party of National Experts on Scientific and Technology Indicators. Paris: Organisation for Economic Co-operation and Development. Para. 71.
- Supra, note 1.
- Supra, note 1.
- Martin, R., and R. Florida. 2009. Ontario in the Creative Age. Toronto: Martin Prosperity Institute. Retrieved June 1, 2009.
- Council of Canadian Academies. 2006. The State of Science and Technology in Canada. The Committee on the State of Science and Technology in Canada. Canadian Council of Academies. Ottawa. Retrieved June 1, 2009
- Supra, note 1.
- Grubb, W. N. 2002. “An Occupation in Harmony: The Roles of Markets and Governments in Career Information and Career Guidance,” Paper prepared for an OECD review of policies for information, guidance and counselling services. Retrieved October 5, 2009.
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- Government of Canada. Community of Federal Regulators. 2006. “First Annual Workshop (November 7-8, 2006) Report”
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