The authors develop the position that Canada's industrial malaise derives from the behavior of firms in Canada. More specifically, one of the most important agents of the malaise is the way many firms of foreign origin have been permitted to operate. Foreign direct investment in goods production has produced a cumulatively detrimental impact on industrial competitiveness and on the country's long-term development. This impact works on the economy both directly and indirectly. Canada urgently requires a comprehensive industrial strategy to facilitate the growth of competitive (not merely more efficient) firms. Enhanced productivity is simply not sufficient to meet the challenges posed by the high costs of production in Canada. The creation of technological and innovative capability alone will ensure Canada's participation in the third wave of industrial development. Technology development policy must occupy a central position in the wider industrial strategy that is so urgently needed. The authors propose possible directions for Canadian technology development and stress the need for a healthy business climate in general. Government leadership and action are obviously needed, but the proposed approach need not increase present government involvement in the economy. Rather a redeployment and an increased coherence of that effort is required.