In July 2023, Ottawa announced a plan to help entrepreneurs reach a milestone that has long eluded nearly every Canadian business: to hit a billion dollars in annual revenue. 

Dubbed the Global Hypergrowth Project, the initiative was a response to a 2021 report by business leader Sheldon Levy, then the special advisor to the federal small business minister, that detailed Canada’s scaleup conundrum and offered solutions for how to solve it. In the preceding decade, the country had built a thriving startup ecosystem, Levy wrote, fueled by world-class talent, mentorship programs and venture capital for fledgling innovative companies. Getting those firms beyond the startup phase, though, remained elusive. 

To bridge the gap from startup to globally competitive enterprise, Levy’s suggested the government focus on supporting a select few companies most likely to make it big. Doing so wouldn’t just benefit companies looking to rake in more revenue; it would give Canada’s languid productivity a shot in the arm. 

The role of innovation in boosting productivity is in many ways intuitive. Whether it’s using robotics in a factory production line or facilitating online sales, technology, in the broadest sense, can help speed up work, allowing businesses to generate more economic output in fewer hours. 

But when it comes to tech companies’ contribution to a country’s overall productivity, size matters. 

The U.S. is a clear example of this, says Charles Plant, co-CEO of ExactBlue Technologies, a rapid testing startup for water contamination, and founder of the Narwhal Project, which tracks scaling Canadian tech firms. The U.S. is the most productive of its G7 peers and also has the greatest share of large tech companies. The Magnificent 7—Alphabet, Amazon, Tesla, Meta, Apple, Nvidia and Microsoft—alone generated over US$2 trillion in revenue last year. That’s more than the top 50 Canadian companies combined, which generated about US$1.2 trillion in total revenue. 

Large tech firms tend to spend more money than smaller ones on research and development, which begets more innovation and boosts their efficiency. They also spend more on marketing and selling their products and services, says Plant—who explored the relationship between company size, innovation and productivity in a 2023 C.D. Howe report—further helping to grow their revenue. 

The Draghi report, a landmark series of papers on the European Union’s competitiveness authored by former European Central Bank president and former Italian prime minister Mario Draghi, was definitive about the relationship between the size of an economy’s tech industry and its productivity. “In fact,” the report reads, “the productivity gap between the EU and the U.S. is largely explained by the tech sector.” 

The contrast in size between Canadian and U.S. tech firms is reflected in their productivity gap, too. Canada’s productivity per worker is just 71 per cent of that of the U.S. as of 2022, according to the Bank of Canada. The chasm between the two countries wasn’t always that wide—their productivity growth began diverging around 2001, with U.S. growth starting to far outpace Canada’s. That’s shortly after many of today’s biggest U.S. tech companies launched, including Google, Nvidia and Amazon.

Benjamin Bergen, president of the Council of Canadian Innovators (CCI), says part of the reason Canada punches below its weight relative to the U.S. when it comes to growing large, innovative firms is because policymakers too often equate growth with employee count. “A lot of the government programs and goals are a jobs strategy,” says Bergen, calling it a 20th-century approach to economic development. “But in an innovation economy, the goal is not actually to create net new jobs. It’s to create efficiencies that eliminate, in many cases, jobs,” he says. “Productivity, by its nature, is doing more with less.”

Jim Balsillie, former co-CEO of BlackBerry and CCI chair, says government incentives for large U.S. companies in Canada is part of the problem. Ottawa’s Strategic Innovation Fund, which distributes hundreds of millions annually to spur innovation across Canada, is one example, he says. Much of the funding has gone to Canadian branches of foreign giants, like tech firm IBM, drugmaker Delpharm and hydrogen supplier HTEC. Balsillie points to a $6-billion Arctic radar contract Ottawa struck in March with an Australian company—instead of its Canadian competitor D-TA Systems—as a missed opportunity. 

While Canadian residents get jobs through these deals, it’s U.S. firms—and the U.S. economy—that glean competitive advantages, and ultimately wealth, from the intellectual property that Canadian workers generate. Through this approach, Canada is missing out on assets that drive productivity, says Balsillie. “We’ve manufactured our own last place by not updating our approaches to account for where wealth and power and security is generated,” he says. 

Balsillie says large tech companies like BlackBerry and Shopify are the exceptions that prove the rule. “We should have 100 times … or at least 10 times” as many companies of that scale, he says. 

The federal government has expressed the same desire. In 2018, then-innovation minister Navdeep Bains said creating “10 Shopifys” would be the measure of success for Canada’s innovation economy. 

More than seven years later, Shopify remains the only 21st-century tech company among Canada’s largest 50 firms by market capitalization—a list that’s heavy on natural resource companies, banks and telecoms. 

Ottawa’s Global Hypergrowth Project tried to help more firms reach Shopify-level success in pursuit of increased productivity. It selected eight tech scaleups to participate in the program aimed to provide them with bespoke support to boost hiring, increase exports, secure public contracts and meet regulatory requirements. 

Healthtech scaleup AlayaCare was one of the companies selected for the program. Its CEO Adrian Schauer says that while it’s well-intentioned, it hasn’t had a lot of traction. “I see what they’re trying to do,” he says. “Of course, we want the next Nortel, the next BlackBerry, the next Shopify.” But, he says, the Global Hypergrowth Project has not been “effective” in delivering that.

Schauer says Innovation, Science and Economic Development, the government agency overseeing the program, doesn’t have the tools to meaningfully assist participating firms with what they need to grow. Helping them clinch funding through the National Research Council’s Industrial Research Assistance Program, for example, would make a difference, he says, but that hasn’t happened because it would interfere with NRC’s autonomy. 

The experience, says Schauer, has effectively been a series of “talking circles” between industry and government. He says that has some merit, but it hasn’t fulfilled the intended goal to boost growth. 

While Schauer says it would be great if Canada had its own “Mag 7,” he says there are other untapped ways technology can improve the country’s productivity. Canadian businesses tend to be slow to adopt new technologies. A 2023 survey from the Canadian Manufacturers and Exporters association found that 40 per cent of manufacturers had just begun or hadn’t yet started digitizing any of their operations. Small manufacturers—those with less than 100 employees—were less likely to adopt technology, the report found.

Canadian firms also underperform on AI adoption, a recent Deloitte report found. Just 26 per cent of Canadian firms have implemented AI compared to 34 per cent globally. “We have lost ground in recent years, with Canada’s ranking on the Global AI Index dropping from fourth place in 2021 to eighth in 2024,” the report notes. Schauer argues that there are “much bigger gains” to be had from adoption of innovative technologies than there are from “”trying to build some tech company champions.”

Michael Buhr, CEO of C100—an organization that connects Canadian entrepreneurs with funding and mentorship in Silicon Valley—says he sees first-hand the tech-adoption gap. U.S. companies relish taking on new technology and trying it out, says Buhr, a Canadian entrepreneur who’s worked and invested in the Valley for three decades. “That changes their productivity level.” That’s not the case in Canada, he adds.

From Buhr’s perspective, Canadian investors and prospective customers need to take more risks on Canadian companies. He says the risk-aversion to new tech in Canada drives Canadian startups and scaleups to the U.S. to find customers. Similar forces compel them to raise money or be bought in the U.S.—giving away some, if not all, of their equity to foreign investors and stunting their growth in Canada. 

Plant, who wrote the 2023 paper linking Canada’s lagging productivity to its lack of tech giants, says he’s recently changed his mind on using the U.S. as a model of success in this regard. “I’ve seen the results of that increased productivity in the U.S., and it’s destabilizing,” he says, noting that massive companies with unbridled power can stifle competition and influence government in their own interest, which may only create prosperity for the wealthy few. “There’s a balance,” he says.

Bergen also says there are limitations to applying the U.S. model in Canada. Rather, he says, the country should look at what works for similarly sized economies, like Norway, Denmark and Sweden, which also outperform Canada on productivity. What those countries do right, he says, is support domestic sectors, rather than individual companies, that can solve big problems that matter to their populations. That could mean building up the cloud infrastructure sector in Canada, Bergen says, for example, helping to achieve digital sovereignty in the country and also grow large domestic companies. Together, that could give productivity a kick. 

With the U.S. becoming more isolated from everyone, and China more isolated from the West, Bergen says there may be more opportunities for “middle powers” like Canada “that don’t have the same desires for domination and control, but just want to be involved in good business.” 

“We can’t do everything, but what are the things that we have to do on our own, or have capacity to do on our own?” he says. Canada must find those things, he argues, and then sell them to the rest of the world. “That’s where productivity and prosperity will come from.”