Losing Winners? Tracking Early Exits of Canadian Cleantech Scale-Up Firms

• In Event: Contemporary Issues in Canadian Political Economy

Abstract

This paper introduces to the literature on green industrial policy the concept of the losing winners' phenomenon, where foreign acquisition curtails the domestic economic benefits captured from public R&D investments in successful clean technology firms. Green industrial policy (GIP) is gaining global momentum to align economic development with deep decarbonization (Meckling & Allan, 2020). The rise of GIP in the US climate policy debate is a prime example. What is being called the New Washington Consensus places a “modern American industrial strategy” of domestic production of innovative clean technologies at the center of U.S. climate strategy. A key objective now is to secure economic prosperity and national security of the country as the global economy decarbonizes (The White House, 2023).

The rise of GIP has sparked debate around the role of the state in driving technological and industrial development. A widely contested issue is the value of public investment in green technologies. This discussion often centers around the state's ability to ‘pick winners’: that is to say, to correctly identify the most promising economic projects. For some, states lack the technical expertise and economic incentives to allocate capital efficiently (The Economist, 2022). Others argue that these problems are real but can be overcome through appropriate institutional settings. A key idea is to fund technologies through a portfolio of projects with clear success metrics and institutional safeguards to terminate unpromising technologies (Rodrik, 2014).

Despite their differences, these two points of view share a common assumption: they both assume that the investing country realizes the economic prosperity or losses that accrue from subsidizing clean technology development. So far, scholars have paid only limited explicit attention to the distribution of the economic benefits of state-subsidized technologies between nations. Evaluation of public R&D funding programs for clean technologies illustrates this approach. In the literature, many scholars consider the acquisition of cleantech start-ups as an indicator of commercial success, as it illustrates the economic promise of the technology (Goldstein et al., 2020; Van den Heuvel & Popp, 2023). Similarly, many important public cleantech programs – e.g. the Advanced Research Projects Agency-Energy (ARPA-E) – consider acquisitions of funded R&D projects as a success metric. The international political economy surrounding the benefits of public financing in clean technologies remains therefore under-explored.

This paper considers the nation’s failure to realize the economic prosperity of successful companies resulting from public R&D investment – what we call ‘losing winners’. To explore this topic, we draw on emerging literature that pinpoints political economy factors impeding the ability of some countries to turn homegrown innovations into thriving domestic firms (Breznitz, 2021; Maggor, 2021). A key idea of this work is that small, open economies (e.g. Israel) are more likely to struggle in reaping public benefits from publicly-funded innovations than large economies (e.g. the USA). However, to our knowledge, no study has yet empirically measured this phenomenon and tested this hypothesis. This research aims to fill this gap. Using Canada as a case study, we propose to measure the number of early exits of Canadian cleantech companies through foreign acquisitions. We chose Canada for two main reasons: (i) many scholars have pointed out the difficulties of scaling up domestic start-ups (Breznitz 2021; Denney et al., 2023) and (ii) Canada has a long legacy of public funding programs for clean technologies.

In terms of method, we examine four Federal R&D programs and retrace the number of publicly funded clean technologies that were acquired by foreign companies (number of firms, type of technology) and their associated costs (number of patents, employment). Then, we conduct a shadow case study of foreign acquisitions of the US ARPA-E program to compare our findings in Canada (small, open economy) with a large economy (USA). The results provide evidence for the hypothesis that the ‘losing winners phenomenon’ – foreign acquisition curtailing the domestic economic benefits captured from public R&D investments in successful clean technology firms – is a structural feature of smaller, open economies.

Author

• Bruno Arcand, Carleton University