Cracking the Code on Canada's Productivity Puzzle: An Interview with Professor Horatio M. Morgan

(c) Andreas Klassen

Welcome to the first FORPIQ interview series in lead-up to our November 2025 conference on Strengthening Canada’s Competitive Advantage in a Global Economy.

We are pleased to introduce Professor Horatio M. Morgan of the University of Waterloo, whom we had the immense pleasure of interviewing in the month of June 2025. Professor Morgan is an Associate Professor of International Strategy and Entrepreneurship at the Conrad School of Entrepreneurship and Business. His interdisciplinary research integrates insights from economics, sociology, and psychology to address puzzles in areas such as international strategy, entrepreneurial finance, global value chains, and innovation policy. He aims to help leaders forge new pathways to global expansion, innovation, and sustainable prosperity.

David Durand (Interviewer): Professor Morgan – thank you for accepting this blog interview. Recently, we came across your LinkedIn posts regarding the use of IP as a means of improving Canada’s productivity (see: here and LinkedIn post). Could you please explain to our readers what was your motivation to write about strategic and economic aspects of intellectual property (IP), and how you got involved in this field of research?

Professor Horatio Morgan (Interviewee): Thank you for having me, David. My motivation stems from a profound desire to see Canada bridge the growing gap between its economic potential and actual performance. But a persistent productivity paradox is standing in the way. 

Historically, we have generated world-class research and developed several high-potential inventions–from insulin in the early 1920s to foundational smartphone technologies, embodied in two-way pagers with voice and email functionalities in the 1990s; and more recently, pioneering and Nobel prize-winning work on neural networks and machine learning technologies that are powering today’s AI revolution. Yet, we struggle to convert our vast scientific knowledge and inventions into performance-improving commercial outcomes at scale.

My involvement in this field of research grew organically from my evolving work on IP, international strategy, and global value chains (GVCs). 

Over time, I came to see IP not just as a legal tool for protecting intangible assets. Additionally, IP is a strategic and structural lever critical to unlocking economic returns from our inventions and especially innovations. 

When it comes to strategy, this is not just about our spending or investment plans as governments often suggest; instead, it is primarily about the valuable resources, assets, and capabilities we acquire or own as a basis for sustaining superior performance and economic security. 

Meanwhile, my focus on GVCs reflects a longstanding but often suppressed view of markets in economics. My PhD in economics from Simon Fraser University equipped me with top-tier analytical tools. But  conventional models of how markets work have diverged from what I see as a strategy consultant, entrepreneur, and business faculty. The marketplace does not fit the neat textbook models of unfettered competitive markets, where many independent firms compete for picky customers by promising lower prices, faster delivery, or better quality. 

Firms also compete to organize and dominate economic exchange, which highlight the need to consider GVCs–namely, networks of firms around the globe that jointly mobilize and convert inputs and intermediate goods or components into finished goods or services. More centrally connected firms, such as anchor firms or hubs (e.g., leading digital platforms like Amazon and Google), derive a structural advantage when it comes to appropriating value in these chains. The value firms extract from GVCs also depend on whether they specialize low- or high-value segments at the upstream (closer to inputs) or downstream (closer to final customers).

By integrating these insights into my work on international strategy and GVCs (see: here and elsewhere), I observe how IP-rich firms and countries consistently outperformed their peers—not only in innovation, but in their ability to lead and profit from GVCs. 

Thus, it is essential to understand how Canada’s business performance or productivity challenges could emanate from strategies, incentives, and structural factors that hamper domestic IP accumulation or constrain chain upgrading–whether shifts toward higher-value functions or more central chain positions. 

David: In your latest article, (Morgan, 2024), you state that economic subordination to foreign interests could lead to diminished economic security for Canada. Could you please explain how?

Horatio: Of course. Economic subordination reflects a deeper structural issue: Canadian firms are often locked into upstream roles in GVCs, supplying raw materials or intermediate inputs, while foreign lead firms control the branding, design, and IP ownership that capture most of the value. In the 2024 Canadian Public Policy article, I argue that Canada's historical acceptance of British mercantilist institutions (including restricted trade, an elitist patent system, creditor-friendly laws, and a bank-centric approach) has shaped our current economic landscape. 

While this tolerance contributed to a stable post-colonial economy from the 19th century, it also limited our firsthand experience and economic freedom–which are essential for fostering long-term prosperity through entrepreneurial risk-taking and intangible asset accumulation. For example, despite improved debtor protections, the reliance on a bank-dominated system still makes it too costly for businesses to take risks, especially with personal guarantees and credit records at stake.

Thus, it is clear that we have remained in upstream chain positions over two centuries: instead of supplying beaver fur and lumber for Britain’s hat and ship manufacturers, we turned to producing auto parts for America’s automakers going into the 20th century. Thus, even though we have reputable parts suppliers like Magna International and Linamar, we are yet to break into the downstream segment of the automotive sector value chain.

(Source of image: OECD, 2019)

To make things worse, the primary sources of economic rent are no longer the physical machines that dominated the prior agricultural and industrial revolutions. Intangible assets, like patents and AI models, are crucial value drivers today.

Thus, we remain at a disadvantage if our firms remain less likely than foreign firms to own and monetize the intangible assets that drive productivity, innovation returns, chain positioning, and global competitiveness today.

David: Could you please elaborate by providing an example to further explain why this would be problematic?

Horatio: Absolutely. This isn't hypothetical. In sectors like mining or energy, Canadian firms often perform extraction, while global players control and license patented technologies for optimizing carbon capture or storage. Furthermore, the latter can integrate the inputs or intermediate components into branded consumer tech, clean energy systems, or AI hardware—areas rich in IP. 

This structure limits our share of profits at either upstream or downstream end. It also undermines our capacity to do these things: scale productivity-enhancing innovations, set industry standards, negotiate cross-licensing deals across borders, or lead emerging clean energy supply or value chains. 

Moreover, when the foreign company decides to shift its supply chain or finds a cheaper source, the Canadian firm, with its limited intangible asset holdings and specialization in lower-value functions, has little leverage and faces significant economic vulnerability. 

At a macro level, these dynamics contribute to a diminished economic security for Canada as a whole, as a larger portion of the value created by our resources and talent flows out of the country. In the end, we will lack what it takes to promise and deliver the jobs, opportunities, and standard of living we deserve and can achieve.

David: So, how did you discover the link between productivity and IP and particularly in the Canadian context?

Horatio: That’s an excellent question because the productivity-IP link is still under-appreciated. Starting with productivity, it is shorthand for a firm’s labour productivity–namely, the value-added output per worker. This captures the economic value per employee a firm adds to its intermediate or final goods and services. A more technical productivity indicator is total factor productivity (TFP). It conveys how effectively firms leverage new or improved technologies or organizational structures to efficiently transform inputs into output. Therefore, we should be concerned about a widening gap in TFP growth between the U.S. and Canada. According to a 2019 study, Canada’s TPF grew by only 0.16% per year versus 1.08% per year for the U.S. between 2002 and 2014. In the period 1970-2002, the annual TFP growth rates were 1.45% and 1.65% for Canada and the U.S.  

We were initially less preoccupied with Canada’s productivity gap and even less interested in the role that IP could play. Since we previously paid lower prices for imports than the prices received for energy (oil and gas) exports before the 2000s, our favourable terms of trade boosted our purchasing power and disguised the enduring productivity gap. But we must now confront it, given declining terms of trade in economic and political terms. 

In a digital and IP-driven economy, I recognized that conventional thinking about productivity drivers would require refinements. It was no longer enough to increase capital deepening or the capital-labour ratio by providing workers with more machinery and equipment. Getting Canadian workers and companies to adopt new technologies faster could help, albeit only partially without complementary innovations. Moreover, conceptual frameworks, such as the smile curve, pointed to a crucial interplay between IP and chain positions under shifting sources of economic rent:

(Figure sources: Adapted from Shih (1996) and Durand and Milberg (2020))

A key implication is that Canadian firms’ innovation scale and returns will be constrained by limited domestic IP assets and other intangibles (e.g., data and AI algorithm). Precisely, their historical upstream specification is becoming more reinforced around lower-value production functions requiring tangible assets. Concurrently, they are losing the capacity to upgrade to higher-value upstream (e.g., design of specialized chips for AI workloads) or downstream (e.g., branding and marketing AI-enabled electronics) functions in increasingly digitized value chains. The potential to lead such chains as anchor firms will diminish. Furthermore, this pattern will likely play out as emerging service chains spanning cross-border remote teams replace maturing manufacturing chains (See: here).

More practically, it’s not just about the number of patents. It matters which applications they target, who owns them,  how they are strategically managed, commercialized, and integrated into a broader business model across chain segments.  As I mentioned earlier, I see IP not just as a legal right, but as a critical strategic asset: a form of intangible asset that, when properly utilized, can significantly enhance a firm's value and positional advantage, and by extension a nation's productive capacity and economic security. For instance, a patented manufacturing process can drastically reduce production costs, or a unique software algorithm can enable entirely new services at scale, both directly leading to higher output per unit of input – which is the essence of productivity. My work on global value chains further solidified this: firms that own key IP are often the "anchor" firms, dictating terms and capturing the lion's share of value, thereby exhibiting higher productivity and profitability.

David: Considering FORPIQ's conference theme on Strengthening Canada's competitive advantage in a global economy, what do you think makes Canadian productivity weak?

Horatio: That’s a difficult but crucial question. Canada’s productivity problem is multi-faceted. At its core, it stems from a complex interplay between firm-level strategic choices and persistent structural constraints. It would be too simplistic to blame it solely on the lack of entrepreneurial ambition or overwhelming external constraints.

Still, there are counterproductive structural factors. The institutional and policy environment still limits Canadian firms’ capabilities and provides inadequate incentives for scaling innovation in strategic upstream or downstream areas. Notable structural frictions include a bank-dominated financing system, cumbersome procurement processes, and weak university–industry linkages. They persistently favour already established firms  with tangible assets and predictable earnings over young or small firms with IP-intensive, innovative business models.

Meanwhile, foreign multinationals with deep IP portfolios are better positioned to secure public contracts, license university-generated technologies, and control commercialization pathways. With the ongoing shift from foreign direct investment (FDI) to cross-border IP transfers, the traditional benefits of technology diffusion and on-the-job upskilling are eroding. This shift has contributed to the weakened link between increased Canadian patenting activity and domestic productivity growth, especially under foreign ownership.

We must also confront internal challenges. Risk tolerance remains lower among Canadian firms. However, many small businesses and founders face steep penalties for failure due to collateral-based lending practices in our bank-dominated system. Additionally, relatively few Canadian business leaders have experience building or leading global scale-ups and multinational corporations valued at over US$100 billion–a more common occurrence for their American peers with leading U.S. tech firms (e.g., Microsoft, Nvidia, Apple, Amazon, Alphabet [Google], and Meta) exceeding US$1 trillion in market cap. As a result, strategies rooted in IP-rich innovation, aggressive expansion, and platform-based differentiation often seem too uncertain or out of reach. Not surprisingly, some of our most ambitious founders choose to scale abroad—often in U.S. ecosystems that offer stronger support and greater upside potential.

This reveals dual productivity inhibitors. First, we still haven’t implemented the reforms required to remove regulatory, funding, and other constraints that disincentivize bold, innovation-driven business strategies. Second, more Canadian business leaders must be willing and able to adopt competitive, innovation, and chain-upgrading strategies that reposition them in higher-value niches across GVC segments. 

This also indicates broader challenges in fostering market structures that balance the trade-offs between strategic and consumer objectives. On the one hand, productivity could suffer due to limited competition in banking, grocery, construction, telecommunications, mining, and other large Canadian industries. Less competition can compromise productivity by reducing the incentive for firms to innovate, invest in new technologies, differentiate through better or cheaper offerings. 

However, let’s not forget that Canada’s business landscape is skewed toward small enterprises that often lack capital, capabilities, and IP strategy sophistication. Since Canada’ productivity gap with the U.S. partly reflects its firm-size disadvantage, pushing competition policy too far could actually make things worse. Thus, our weak productivity could also reflect inadequate efficiency-enabling consolidation among SMEs in select sectors while minimizing the potential for monopoly abuses.

David: How can Canada get back to its pre-COVID productivity standards? And can IP in manufacturing make an impact?

Horatio: Trying to return to pre-COVID productivity levels is worthwhile. But, again, the evidence is clear that our productivity problem predates COVID: recall that our TFP grew just 0.16% annually, compared to 1.08% in the U.S. To move forward, we must focus on building scalable firms with IP-intensive business models. 

On the manufacturing side, a lot of what I previously shared is applicable. Given our SME-dominated industries, our manufacturing industry’s potential depend on our ability to cultivate and scale innovation hubs comprising IP-intensive niche manufacturers. For example, they could specialize in different upstream designs for smart factory robotics or AI microchips. At the downstream end, they could market and distribute branded robot applications or AI-enabled electronics.

We could compensate for their size disadvantage and optimize the return to public investment (ROPI) by pursuing economies of scope. This could come cost-savings or efficiencies linked to a shared R&D program (e.g., publicly funded R&D supporting multiple niche applications), digital infrastructure (e.g., shared data assets, compute resources, and AI model architectures), legal frameworks (e.g., shared or standardized tech transfer agreements and IP expertise), digital human capital (e.g., shared curriculum for training in complementary digital skils), financial solutions (e.g., non-dilutive funding, IP-backed lending, and equity-based funding through a common platform), and procurement programs (e.g., government procurement could be streamlined through a shared platform). There must also be a high potential for positive spillovers or inter-firm learning, which is possible if niche manufacturers are co-located physically or digitally. 

By taking this hub-based approach, we could set the stage for Canada to reposition around high-value niche manufacturing and related services in emerging value chains.

David: What is your opinion on the following research statement: “Investment, innovation, and adoption of new technologies and business practices may also lag behind levels in the United States and other countries due to less competition in many of Canada’s large sectors, the smaller scale of its domestic businesses, and a less apparent appetite for risk among Canadian firms.”

Horatio: That statement highlights several realities, but the more nuanced points I shared still apply. Without restating them, it’s probably sufficient to recognize the interacting choices and constraints at play. 

Again, the issue isn’t simply that Canadian firms are smaller or more risk-averse—it’s that the institutional and policy frameworks have not evolved to reward scale-seeking, innovation-intensive behaviour. In many sectors, Canadian business leaders rationally temper risk-taking due high failure penalties, limited access to IP-backed financing, and the absence of robust support ecosystems. Meanwhile, those without the required experience could more willing but less able to execute superior strategies.

Moreover, dominant foreign players in concentrated markets or GVCs can shape the innovation agenda in ways that discourage dynamic entrants or limit Canadian firms’ strategic options. 

So, addressing Canada’s productivity problem necessarily requires not only recognizing structural constraints, but actively reconfiguring incentives to support bold, IP-led growth strategies.

David: Do you think the SAIL project would overcome the above challenge?

Horatio: That’s a timely question because I’ve been reviewing the SAIL project. As a Simple Agreement for Innovation Licensing, SAIL offers a standardized legal framework tailored to Canada’s innovation landscape, where startups and SMEs have the potential to drive early-stage commercialization. Its promise lies in aligning tech transfer with cost recovery without discouraging founders. By replacing upfront fees or royalties with convertible debt, it also removes the burden of premature IP valuation and simplifies negotiations. This approach is especially appealing for early-stage university spinouts, software ventures, and solo-founder startups. Meanwhile, it is probably less ideal for later-stage or revenue-driven licensing involving established firms with the leverage to negotiate customized deals. Still, SAIL could significantly accelerate technology commercialization via university-industry pathways in Canada.

David: What new projects are you working on? Provide details as to what you want to achieve (if you want) and how people can get in touch with you.

Horatio: One project I’m especially excited about is Patentrθva (sm): an AI-enabled platform built to help tech transfer offices make smarter, faster patenting and commercialization decisions at scale. Given data availability for model training, we will start with U.S. patent filings.

Patentrθva (sm) directly addresses Canada’s IP-productivity gap by offering data-driven patentability predictions, explainable feedback, and triage tools that help teams prioritize high-potential disclosures.

But it is more than a prediction engine. Its built-in Resource & Exchange Center (REC) will connect Canadian and U.S. TTOs, enabling them to access shared resources, SAIL licensing templates, and prediction workflow toolkits. Peer-to-peer forums will also foster learning and best-practice exchange, helping institutions optimize their invention disclosure pipelines for faster and better commercialization outcomes.

We’re on track to release our demo and open early access this summer. It’s an exciting step toward blending human judgment, data science, and AI to take the university tech transfer ecosystem to the next level.

Ultimately, I want to achieve a more vibrant and effective tech transfer ecosystem in Canada, one where our innovative ideas translate into more sustainable prosperity and human flourishing. I believe this new platform can be a practical resource for universities, businesses and their advisors (like those FORPIQ serves) by discovering and maximizing the value of their intangible assets.

People can get in touch with me directly via my University of Waterloo profile page (horatio.morgan@uwaterloo.ca) or through my LinkedIn profile (here). I'm always keen to connect with businesses, policymakers, and researchers who share an interest in strengthening Canada's innovation and IP capabilities.

Concluding remarks

David: Professor Morgan, thank you so much for kicking off this new FORPIQ blog series with us. Your insights into the productivity crisis and the critical role of IP are invaluable. We look forward to seeing your upcoming research and the development of your tech transfer tool.

References:

• Research Paper: https://utppublishing.com/doi/pdf/10.3138/cpp.51.S1-001

• LinkedIn Post 1: https://www.linkedin.com/posts/horatio-m-morgan-81105383_understanding-canadas-productivity-problem-activity-7331364266580631552-sfgu/?utm_source=share&utm_medium=member_android&rcm=ACoAAAY948UBJ5vqtvoWGmbes0HhAE7V4SoT4xI

• LinkedIn Post 2: https://www.linkedin.com/posts/horatio-m-morgan-81105383_publicationupdate-canadianpublicpolicy-activity-7206778132882739201-sJol/