The Innovation Game: What Scrabble Can Teach Us About Prosperity in Canada

By Laurent Carbonneau
CCI Director of Policy and Research

I’ve gotten tired of hearing somebody describe international competition as a chess match. It’s tedious, cliché, and en passant.  

That’s why a new report from the World Intellectual Property Organization (WIPO) about the intersection of innovation and economic development policy grabbed my attention. It bypasses the usual tropes and argues that we need to think about the problem of Canadian prosperity not like chess, go or even checkers, but as Scrabble.

What can Scrabble teach us about prosperity in Canada? First, we need to bring back to mind the concept of economic complexity. We’ve talked about economic complexity in Mooseworks before; it’s what makes Switzerland an innovation powerhouse.

Economic complexity is essentially a measure that compresses how much hard-to-make stuff a country actually sells. It’s also the best long-term predictor of national income levels. Canada used to be ranked 22 in the world for most complex economy in 2000. We’d dropped to the 41 spot by 2021. (A small caveat here that countries that export a lot of natural resources tend to be richer than their economic complexity would otherwise suggest).

The Scrabble metaphor is a great way to think about how innovation and complexity interact. You win in Scrabble by playing lots of high-value words, which tend to be longer, have more uncommon letters, or are played on tiles with bonuses.

Similarly, in the real world, some countries create more hard-to-make products, especially ones that involve scarce resources or unusual technologies, sell them in high-value markets and protect them with IP rights. Those are the countries that tend to win the economic grand prize: a high standard of living.

This WIPO report expands on the concept by diving more deeply into what makes things hard to make by differentiating between three kinds of capabilities:

• scientific capabilities
• technological capabilities
• productive capabilities.

Scientific capabilities are expressed by things like publications, technological capabilities in things like patents, and productive capabilities show up in export data.

The WIPO report authors actually single Canada out, very diplomatically, as a jurisdiction with a lot of “untapped potential” between its actual technological performance and the technological performance you would expect from a country with Canada’s economic and scientific fundamentals.

It’s telling that some of the very big gaps here – in semiconductors and biopharma to take two –are capital-intensive sectors where Canada has few large, homegrown companies in a position to patent, commercialize and export.  

The WIPO paper has some further reflections on what governments can do to help narrow gaps like these and acquire new, wealth-creating capabilities. As they point out, classic import-substitution (i.e. protective tariff-based) industrial policy has not worked well in more than a hundred years. Export-driven industrial policy worked very well in some East Asian economies but does not have a flawless track record. Investing in science and technology has also demonstrated its limits here in Canada.

To go back to Scrabble terms, imagine that you are watching a game of the Economic Scrabble championships, where Team Canada is in a tough match against Team Germany.

Economic Scrabble is played in teams of three (I’m making this up, but we should really do this.) One Canadian is thinking up letters of the alphabet and how in theory one could draw them from the bag – he is our scientific capabilities. He is pretty sure he is on to something pretty big with this ‘the letter X’ idea and has in fact gotten a lot of NSERC grants to look into it.

The second person is using the information she’s getting from the first to fish for tiles in the bag and coming up with words we could play. She is our technological capabilities, and is getting a little irritated that for all of the great, highly-cited papers about X that Dr. Scientific Capabilities is getting published, he has yet to actually give her a lead on an X tile.

Finally, the third person – our productive capabilities – can only play words out of the letters that Ms. Technological Capabilities has drawn from the bag. Without better options, he plays OIL, CAR and TREE over and over again.

(At the post-match media scrum, Dr. Scientific Capabilities celebrates Canada once again ‘punching above its weight’ in letter X theory. He doesn’t really care that Canada was trounced by Germany, 73-192, which scored big playing the word PHARMACEUTICALS.)

Clearly, there is a problem with Canada’s game plan here. We need to find ways to turn research more effectively into technological capabilities and technology into products that customers buy.  

Thinking about capabilities and how they relate to each other gives us a set of tools about how we can spend our science and technology dollar much more wisely.

The report authors highlight two examples of two countries that leveraged relatedness to move into new, higher value capabilities, Sweden and Finland.

Sweden’s path to greater complexity was linear and focused on moving into new capabilities that were close to ones they already had – from forestry into “wood treatments, furniture, designs, logistics and eventually telecommunications.” Finland went on a slightly riskier path focused on minimizing the time to an economic transformation, from forestry to “woodcutting and pulping equipment, heavy machinery, electronics and later telecommunications and video games.”

The idea of complexity and of using related capabilities to drive smart investments into long-term growth opens up some really sophisticated targeting and tools. It means looking at where you have strengths across science, technology and production and nudging the economy towards entry into high-value niches where other countries will find it hard to compete with us.

As the authors note very innocently, a lot of countries are investing in batteries right now, and “economies of scale in the production of batteries may mean that production will only be efficient at a few locations. In addition, it is unclear whether hosting battery production will offer substantial spillover benefits to the local economy, or whether batteries will turn out to be a commoditized product that can be easily imported.”

I’d like to shoutout the Centre for Canadian Innovation and Competitiveness for their piece on this, which brought the WIPO report to my attention – it is worth your time, and goes into some more detail on to how we can fix our research-to-patents pipeline.

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