The federal and Ontario governments should collaborate to make Waterloo one of the world’s top 50 science and technology clusters, according to a new commentary from the Centre for Canadian Innovation and Competitiveness.

Waterloo is not Canada’s biggest tech hub but it is the best shot at scaling up, says the commentary by Lawrence Zhang (photo at right), head of policy at the Ottawa-based Centre affiliated with the Information Technology & Innovation Foundation in Washington, D.C.

Waterloo ranks as North America’s top small tech talent market for the fourth consecutive year, has added over 9,000 tech jobs since 2018, and boasts a higher concentration of tech workers than Toronto, Zhang says.

Waterloo also hosts Canada’s top engineering school at the University of Waterloo, a robust start-up infrastructure and a track record of globally relevant firms.

“The foundation is there. What’s missing is the national policy weight to push it over the top,” he says.

Zhang points out that Canada has zero entries among the world’s top 50 science and technology clusters, according to the 2024 Global Innovation Index.

Toronto comes in at number 54, while Vancouver and Montreal remain unmentioned. “These are not fringe cities; they are the anchors of Canada’s innovation economy. But none of them crack the global top 50.”

This ranking reflects a deeper problem, Zhang argues. It is that Canada has not built a single tech or science cluster with enough scale, concentration and visibility to matter globally.

“This is a structural failure that demands a  big, hairy, audacious goal to fix it. Canada should identify and support one technology cluster that can break into the top 50,” he says.

“We argue that the only way to do this is to concentrate resources in one place. And we believe the best candidate for elevation is Waterloo.”

Trying to elevate Toronto or Montreal risks spreading investment too thin, Zhang argues. Both cities have strong tech sectors, but they’re large and fragmented, with many institutions and priorities competing for attention. “Major new incentives to really boost these locations would require significant resources that Canada does not have.”

The federal government already funds regional innovation through the Global Innovation Clusters program. But its model – five sectoral clusters across multiple provinces – prioritizes balance over scale, Zhang says.

“Despite the name, the program has not produced clusters in the economic sense: concentrated, self-reinforcing ecosystems of firms, talent and capital.”

Real clusters are more than proximity, Zhang notes. They are dense, place-based systems of innovation and production. They require co-location of firms, active labor mobility, embedded R&D institutions, shared infrastructure, supply chain interdependencies, and a culture of iterative learning between firms and universities.

Canada’s current model funds valuable networks, and while it should be continued, it does not build concentration, he says. “If everything is a cluster, nothing is.”

Canada’s broader innovation model reinforces this pattern, Zhang says. Programs are designed to distribute support broadly, not build concentrated strength.

Different approach to creating clusters is needed

However, an additional and different approach to cluster-building is needed, he says. Clusters offer a way out, he adds, not by narrowing participation, but by concentrating capital, talent and ambition in one place, allowing a sector to build a self-reinforcing gravitational pull.

“Designating Waterloo as a tech and computing cluster would be the first step toward the kind of concentrated approach Canada’s current model lacks,” Zhang says.

As part of a suite of measures, tech startups based in the region should be tax-free for 10 years, he recommends. So should firms outside Canada that relocate meaningful R&D and innovation production.

On its own, a tax exemption will not build a cluster. But it will signal that one is being built, he says.

The University of Waterloo should also receive more funding for research and commercialization, Zhang says. Together, these are early incentives while longer-term institutions and infrastructure take shape, he adds.

“This is not about picking winners. It is about backing the conditions that allow winners to emerge at scale, enabling them to compete globally.”

Zhang says the evidence for this approach is strong:

• In Clusters from the Inside and Out, Wolfe and Gertler show that real clusters emerge when local institutions, civic leadership and global linkages reinforce one another.
• In Do Clusters Make a Difference?, Spencer et al. use Canadian data to demonstrate that clustered regions outperform on income, employment and innovation.
• In Clusters, Convergence, and Economic Performance, Delgado, Porter and Stern show globally that strong clusters drive spillovers, increased patenting, and the emergence of entirely new industries.

Additionally, the benefits of clustering are not confined exclusively to the cluster itself, Zhang says. As a strong hub grows, adjacent regions benefit through talent spillovers, supply chain linkages, knowledge transfer and increased market access.

Clusters also anchor strategic sectors, embed key capabilities within domestic institutions, and reduce brain drain by offering high-quality work at home, he says.

Clusters make it more likely that Canadian inventions are commercialized domestically, that Canadian IP stays in Canadian hands, and that Canadian workers gain skills that compound within the national economy.

“This is not a leap of faith,” Zhang says. “It is a long-overdue application of what the world’s best-performing economies already know: If you want productivity, you have to build around scale and specialization. You need to create literal, physical zones where excellence is rewarded and where innovation does not have to beg for relevance.”

“Waterloo does not need a blueprint. It needs a decision. A deliberate policy choice to concentrate growth, reward ambition and give Canada a place that can compete on a global scale.”

See also: Canada’s life sciences industry needs anchor firms to create world-class clusters: report

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