The concepts of economic clusters and entrepreneurial ecosystems continue to have a strong presence in today’s strategic thinking. For example, the federal government recently announced a short list of proposed “innovation superclusters” as part of its $950 million initiative. Invest Ottawa promotes the growth of six high growth knowledge-based industries – life sciences, software, digital media, communications technology, clean technologies and, aerospace, defence and security. As illustrated by Invest Ottawa’s six high growth sectors, cluster strategies typically focus on advanced technology industries. The region is now being touted as being Canada’s Autonomous Vehicle innovation cluster.
Why Isn’t There A Federal Government Cluster?
I recall many years ago (almost 20 to be more exact) attending a presentation by staff from the City of Ottawa and the Ottawa Centre for Research and Innovation (OCRI), the predecessor to Invest Ottawa, the City’s primary economic development agency. The presentation was about promoting business clusters as part of a new economic development strategic framework. Spearheaded by the pioneering work of Michael Porter from Harvard University, business clusters are geographic concentrations of interconnected businesses, suppliers, and associated institutions in a particular field. Regional economists explain clustering as a means for small companies to enjoy some of the economies of scale usually experienced by large firms. By staying in spatial proximity, firms are able to benefit from such things as the community’s pool of expertise and skilled workers; easy access to component suppliers: and access to information channels. Moreover, clusters are critical to nurturing of entrepreneurial ecosystems and innovation.
I had asked a question at the presentation as to why the federal government was not considered to be one of the clusters given the dominance of the public sector in the local economy. The response was that the federal government was not seen as a “traded” industry. Traded industries are comprised of companies that sell goods and services to consumers outside the metropolitan area. Also called export base or basic industries, these companies are different to firms providing goods and services for local consumption such as retail and personal services and are considered to be the growth engines of a local economy (this is one of the reasons behind the emphasis in advanced technology).
In FY 2015/16, the federal government collected $295 billion in revenues with personal income tax accounting for 49% of the total. In 2014, there were 958,405 tax filers in Ottawa-Gatineau representing 3.6% of all Canadian tax filers. Total federal and provincial taxes paid by Ottawa-Gatineau filers equaled approximately $9.1 billion, about 4.3% of the total in Canada.
The federal government is clearly a traded sector bringing in an enormous amount of income into the National Capital Region. Of course, most of the revenue pays for national programs or goes back out in the form of transfer payments to provinces and individuals (e.g. Canada Pension Plan payments). But a significant portion remains in the National Capital Region paying salaries of the approximate 109,000 civil servants, 42% of all federal public servants in Canada (excludes Canadian Forces members and employees working for the National Capital Commission and the Canadian Security Intelligence Service).
The federal government is also a critical part of Ottawa’s economic clusters especially Aerospace Defence & Security, Communications Technology and, Clean Technology (invest Ottawa). Public Services and Procurement Canada purchases over $16 billion for goods and services on behalf of federal departments and agencies. Government spending has supported Ottawa-based specialized information and communications technology, software development, and professional services. According to data provided by Invest Ottawa, the federal government spent about $2.9 billion on goods and services from Ottawa based businesses in 2015/16.
Ottawa is the home of numerous federal government research laboratories. In FY 2015/2016, federal research departments located in the National Capital Region spent just over $3 billion on science and technology (Statistics Canada CANSIM 358-0145). Several departments such as the Communications Research Innovation Centre and National Research Council (Institute for Information Technology, Steacie Institute for Molecular Sciences, Innovation Acceleration Centre and Institute for Microstructural Sciences) provide incubator space for small startup companies. The research departments have also contributed to the startup of firms through technology transfers from government laboratories to the private sector. The prominent government laboratories have also helped to attract skilled engineers, technologists, and scientists.
The intricacies of the linkages between the federal government and private industry are well illustrated by the history of Nortel which was once the world’s largest telecommunications companies that launched Ottawa as a global centre of technology development and entrepreneurship during the 1980s and 90s before the tech bubble of 2000-2002. Bell Northern Research, which was later folded into Nortel, became established in Ottawa largely because of the proximity to and linkages with government laboratories developed through the wartime activities of the National Research Council and the Defence Research Telecommunications Establishment (Dianne Isabelle “S&T Commercialization Strategies and Practices” in Handbook of Research on Techno-Entrepreneurship edited by F. Therin: 2007. p. 63-83). Bell Northern Research was originally known as the Northern Electric Research and Development Laboratories created by Montreal based Northern Electric (later Northern Telecom and then Nortel Networks) in 1957. The original R&D laboratory outside of Montreal was actually located in Belleville in 1960. Michael Cowpland had worked for Bell Northern Research before starting up Mitel in 1973 with Terry Mathews who had also worked for MicroSystems International, an Ottawa-based company with affiliation with Northern Telecom.
It is apparent from the above brief description, that there exists a considerable overlap between economic clusters in Ottawa and that the federal government cluster is the most dominant one. Indeed, some technology sectors like Aerospace, Defence and Security can be seen as being sub-clusters. This is not really surprising since many of the businesses that comprise the different economic clusters have evolved because of Ottawa’s unique and absolute competitive advantage as the Nation’s Capital. This would also apply to a local tourism cluster as well as to what could be called an Advocacy cluster comprised of business and trade associations, grassroots organizations, lobbying firms etc. who have located in Ottawa to be close to elected officials and regulatory agencies. In the case of tourism, visitors to the National Capital Region are attracted by federal government museums, monuments, Parliament etc.
The federal government, therefore, is the main cluster in Ottawa and is the primary driver of economic change. This can be further illustrated by looking at the economic impact that the government has on the metropolitan job market. Using Washington D.C. as the benchmark, it is estimated that, in 2013, 52% of the District’s total jobs can be accounted by the presence of the federal government using the input-output model to estimate direct, indirect and induced jobs. Federal jobs accounted for 14% of metropolitan Washington’s total employment. According to Statistics Canada’s labour force survey, employment in Public Administration accounted for 21% of total jobs in metropolitan Ottawa-Gatineau in 2016 or 50% higher compared to Washington which would equate to a total job impact of about 75%.
Based on Statistics Canada labour force survey, Ottawa has experienced significant fluctuations in the number of jobs in high technology over the last 20 years. According to the latest survey, there were 48,100 workers in the Computer and Telecommunications sector compared to the two previous peak times of 71,700 in May 2000 before the telecom bubble and the beginning of Nortel’s downfall and 70,400 in October 2007 before the “Great Recession” of 2008/09. Some of the luster that Ottawa had when it was considered to be “Silicon Valley North” during the 1990s has also shifted to Waterloo where it is frequently held up as one of Canada’s most dynamic entrepreneurial environments closed associated with the University of Waterloo. Moreover, the Waterloo technology community has been viewed as being integrated into what has been called the Toronto-Waterloo Innovation Corridor which as the potential of becoming one of the world’s top innovation ecosystems.
Spigel further argued that the collapse of the technology bubble in 2001 contributed to the breakdown of Ottawa’s entrepreneurial ecosystem and culture whereby where it no longer sees “high-growth, high-risk entrepreneurship as the norm and now encourages low-risk start-up practices”.
Ottawa had another recent setback when it did not make the federal government’s shortlist of 9 superclusters. One of the proposals shortlisted is within the Toronto-Windsor corridor. It could be that being part of Ottawa’s technology-government ecosystem was a disadvantage this time in terms of the politics behind the shortlist decisions.
Ottawa will continue to maintain its importance as a regional technology ecosystem even though it may not achieve the global status that Toronto is aiming for. Ottawa will remain as the Nation’s Capital, a role which it has absolute monopoly along with its research laboratories and huge procurement potential. There will be other Shopify’s in the future as there were in the past – Corel, Mitel, Newbridge, JDS Uniphase and Cognos before they were bought by foreign companies and others.
Searching for Emerging Clusters
However, there are also other non-technology clusters that may emerge in the future that is tied to the federal government. The challenges faced by the world are vast and complex having important social consequences – peace and world hunger, climate change and global warming, sustainable development, security and protection against terrorism, demographics including immigration and aging population, renewable energy and distribution, collaborative governance, public trust in government, smart workforce, rapid technological change (e.g. artificial intelligence) etc. These challenges fall within the federal government domain either as a provider, funder or regulator. Solutions to these global problems often start with technology and innovation. Ottawa can be the prototype for a knowledge-based economy where economic or technology clusters become closely integrated with emerging “social clusters”.
A recent Ipsos MORI survey of 18,000 respondents from 25 nations found that Canada had the greatest positive influence on world affairs. International business is a core economic cluster in Ottawa although it rarely gets recognized as such. As the Capital of Canada, Ottawa has a unique comparative and competitive advantage in international business and trade, and global affairs. Many organizations and economic activities comprise the international business cluster including federal departments such as Global Affairs Canada, international charity and non-profit organizations, consultants and lawyers specializing in international trade, international business and trade associations, travel agents and the hospitality industry, university institutions, community level ethnic and multicultural groups, and foreign embassies and consulates. The 130 foreign missions are one of the most underutilized economic resources in Ottawa. Although by themselves, they are not large employers or have a large direct local economic impact, they do represent important gateways to nations all over the world and to their culture and economic opportunities.