In a multipolar world increasingly driven by digital technology, where nationalistic forces are gaining traction, and in which geopolitical and economic security are ever more entwined, Canada needs to set a new course in strategic security — one that accounts for cybercrime, artificial intelligence (AI), quantum computing and the commercialization of space, among other disruptive trends. The security and prosperity of Canadians depend on it.
Setting a new course will mean embracing a conceptual framework that transcends traditional notions of security in favour of policy that recognizes the multi-dimensional nature of national security in a digitized world. This means, among other things, ensuring resilience amid potential supply disruptions, and getting much more serious about promoting innovation competition.
This thinking can and should be integrated into Canada’s national COVID-19 economic recovery plan.
Allow me to explain.
Canadians have long been blessed by geography and prosperity, buttressed by our proximity to the United States. But in the two decades since 9/11, the nature of the strategic threat and national security have inexorably changed, evolving from a dependency on conventional capabilities to cyber- and space-based ones, capabilities with which Canada has not kept pace.
Major efforts are being made by emerging or re-emerging strategic powers such as China and Russia, as well as the United States, to secure advantage in this increasingly multipolar and data-driven world. The growing influence of China, asserted via its Belt and Road Initiative and leveraged with emerging disruptive technologies, informationalization, predatory economic policies and monopolization of technology development, represents a critical security consideration.
So does the connectivity that now permeates every aspect of our society, economics and politics. Its ubiquity creates new vulnerabilities and redefines the critical infrastructure that underpins societal resilience and government legitimacy. The weaponization of inexpensive, readily accessible, dual-use commodity technologies that make up the Internet of Things has blurred the traditional lines between military and civil effects. The result is that seemingly innocuous innovations result in potential military threats, thereby challenging the traditional defence context of strategic autonomy.
The reality is that our reliance on a data-driven environment — the digital ecosystem that underpins our increasing autonomous capabilities, smart cities and key functions supporting democratic institutions such as electoral processes and public dialogue — has facilitated unprecedented new sources of power and influence to not only a broader range of nations, but also non-state actors, terrorists, rogue entities and private citizens.
We need to apply strategic thinking in considering how digital sovereignty supports strategic autonomy, national security and prosperity. The application of new technologies built on data, machine learning and AI is driving disruptive innovation across all economic sectors. A relatively weak innovation performance puts Canada at risk of being disrupted, rather than in a position to disrupt. Accordingly, strengthening Canada’s innovation performance is critical to ensuring this country's longer-run prosperity.
Because future growth will depend on a sturdy foundation of innovation, intellectual property (IP) is critical to this discussion. But Canada is weak in terms of commercialization or retention of IP and talent. Reasons typically offered for Canada’s generally weak innovation performance include a lack of venture capital, naive business models for doing collaborative work with foreign companies, outdated foreign direct investment policies, a high share of foreign owned companies and too few IP commercialization incentives.
Large multinational corporations furnish digital services that provide public order, essential critical infrastructure and national security — all activities essential to societal resiliency — and, as such, challenge the authority and power traditionally held by nation-states. In the near future, countries that can independently influence and control the development, exploitation and manipulation of digital technologies will be the ones shaping economic, societal and political developments, within their own borders and beyond.
Consequently, a global race for leadership is now under way in key areas such as AI, 5G (fifth-generation) networks, quantum computing and space tech. Increasingly, this jockeying is the subject of international tensions and a growing “geopoliticization” of digital technologies around the globe. To maintain its sovereign integrity, Canada must evolve a policy of digital autonomy to ensure its ability to securely innovate; to compete effectively; to defend our national autonomy; to maintain and bolster our ability to set and meet objectives; and to project influence globally.
The United States has set economic security as a central pillar of its national security strategy and is increasingly restricting the sale of advanced technology products, scrutinizing foreign direct investment in high-technology sectors and data-intensive businesses.
Geopolitics and the Impacts on Canada
Canada’s positioning in the new global economy is complicated by the new geopolitical reality. In effect, the escalating rivalry between the United States and China is redrawing the lines of the global economy based on the competition to dominate new general purpose technologies that use big data, machine learning and AI.
Current American national security strategy is based on maintaining the United States’ technological superiority over China. Alarms have been raised about China’s advances in areas such as 5G telecommunications equipment, electric vehicles and batteries, AI and predatory technology and industrial policies that result in the potential subservience of states to Beijing’s interests.
These are in addition to traditional national security concerns related to the continuing modernization of China’s military, in an emerging challenge to US global force projection. China’s digital transformation and industrial rise have created vulnerabilities that have already been weaponized in the areas of microchips and rare earth minerals, resulting in a “de-Americanization” and reciprocal “de-Sinification” of respective Chinese and US supply chains.
Such developments require new thinking regarding the interface between national security and economic policy. Chinese/US geopolitical developments, concerns about scarcity of supply and a rising frequency of export restrictions, as well as digital transformation and global dependency on cyberspace, increasingly drive the need to secure any country’s cyber borders.
Such developments are taking place in an international environment being impacted by peak globalization, nationalism and climate change. Indeed, geopolitics is being reshaped by intricate global/regional value chains and trade and innovation linkages formed by private interests in a formerly unipolar world, in which national security was a nominal trade consideration.
The resultant dislocations, such as the rise in the intangibles economy, migration flows and the need for revised diplomatic engagement in the Arctic as ice recedes, will become key security considerations for Canada.
Our traditional strategic partners and potential competitors have not been slow to recognize these trends. Many disputes at the World Trade Organization have been based on national security considerations. The United States has set economic security as a central pillar of its national security strategy and is increasingly restricting the sale of advanced technology, and scrutinizing foreign direct investment in high-technology sectors and data-intensive businesses.
From the Trump administration and now into the Biden administration, “Buy America” policies have been tightened, reducing the scope for US companies to source from Canada when bidding for US government contracts.
Moreover, university research is increasingly under scrutiny. The European Union is advancing a concept of technological sovereignty and national security as the basis for restricting the flow of data outside its borders; and China has implemented new data security laws to regulate Chinese companies raising capital in foreign equity markets and transferring data outside its borders.
These various developments present significant consequences for Canada’s economic prosperity. So, policy must be shaped with close consideration of these political, technology and security trends. National security and industrial/innovation policies must be recast to include considerations relating to security of supply, and with who and how we partner, so as to mitigate risks and threats.
These developments are taking place in a context of the rising intangibles economy, rapidly growing innovation resource requirements, and accelerating business model adaptation to modern technology, for example, remote work. These developments continuously drive disruptive economic change, while diversely impacting Canada’s various regions as we transition from an economy based on resources to one based on services.
The upshot is that the geopolitical and technological context is greatly changed, from what we faced even a few years ago. It expands the threat landscape to include economic interdependence that can be weaponized. A loss of technological leadership vis-à-vis strategic adversaries can translate into a corresponding loss of the traditional military security that ultimately underpins our society and economy.
A nation’s ability to innovate is key to its thriving in the global environment. Canada must now devote greater attention to innovation. This country’s vibrant technology sector has the potential to benefit from the emerging intangibles economy. But the sector is small, and Canada’s innovation performance has been generally assessed as weak. This past performance puts Canada’s future prosperity at risk. One can argue that this country's principal problem is not an inability to innovate, but rather the naive business model that prevents us from reaping the benefits.
Distressing indicators that we are lagging in the knowledge-based data economy include Canada’s low spending on research and development (sixth in the Group of Seven) and our declining spending on research and development as a share of GDP, relative to that of emerging technology leaders such as Israel and Korea. The patenting of technology in Canada is also weak.
Further, in a knowledge-based, data-driven economy in which value capture is mainly in intangibles, the relatively small stock of intangibles further contributes to poor Canadian positioning relative to global competitors.
Weaknesses at the industrial and operational levels can erode Canada’s ability to shape international rules, norms and standards in a way that reflects our interests and values. Likewise, lack of technological leadership can open the door to increased foreign influence and control over key technologies.
Strategic Autonomy, Digital Sovereignty
Strategic autonomy and digital sovereignty encompass industrial, operational and political autonomy.
The first dimension relates to the industrial/technological base that fulfills sovereign digital technology needs. The second dimension, operational autonomy, pertains to the ability of cyber-enabled critical infrastructure to withstand attack. And weakness in either of these two areas can undermine Canada’s strategic autonomy in the third dimension, the political level. An example would be an inability to make informed decisions independent of election interference, espionage or commercial coercion.
Weaknesses at the industrial and operational levels can erode Canada’s ability to shape international rules, norms and standards in a way that reflects our interests and values. Likewise, lack of technological leadership can open the door to increased foreign influence and control over key technologies, providers of critical infrastructure, and essential services, leading to disadvantageous knowledge transfer, long-term economic costs, intelligence operations, coercion and even sabotage.
And yet, to date, the notion of digital sovereignty as intrinsic to economic and physical security has not taken hold in Canada as a fundamental pillar of government policy.
To that end, Canadian policy makers must consider the nature of digital sovereignty, and how it will be achieved. Canada benefits from openness and an international flow of goods, and sovereignty implies the ability to independently decide the type of digital environment this country desires. Sovereignty also implies that reliance on a single supplier for critical components is not appropriate.
If Canadians cannot communicate securely — that is to say, without risk of foreign oversight and interference — we are not sovereign. If industry in our market cannot innovate without our IP being stolen, we are not sovereign.
Ensuring Canada’s Prosperity
Notwithstanding the imperative to move aggressively, an opportunity presents itself in the national COVID-19 economic recovery plan. This is an opportunity to revamp the security budget to ensure that cybersecurity and Canada’s digital sovereignty are protected.
Such a policy should set four priorities: one, to invest in state-of-the-of art connectivity; two, to establish a stronger industrial presence in strategic parts of critical infrastructure and digital supply chain; three, to leverage a data economy as an engine for innovation; and four, to create a business environment allowing businesses to compete and scale up.
If we are to bolster Canadian digital innovation in an environment of economic nationalism, Canada needs to consider an industrial policy that complements economic and national security, as we find it among our principal allies. This could reinforce selective niches in areas of current strength — such as AI, quantum computing, cloud computing, 6G, space tech, agricultural technology and batteries — and help transition our resource-based economy to that of a services and intangibles economy.
As a starting point, the federal government should reinforce its role as a launch customer and use federal procurement to promote the growth of Canadian firms innovating in the areas of big data, machine learning, quantum computing and AI.
Simultaneously, the government could launch an innovation bond to support equity investment that would help Canadian innovators in the data-driven economy grow.
Does the foregoing present significant challenges for this country’s policy makers, as they grapple with post-pandemic geopolitics and economics? Absolutely. But it is imperative these challenges be addressed now. Canada’s continuing prosperity and security depend on it.