Innovation Canada: A Call to Action

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Innovation Canada: A Call to ActionAt the same time, the ageing of the baby-boomgeneration means that the share of Canada’spopulation that is of working age will decline,thus increasing the competition for workers andskills and requiring more output per worker —that is, greater productivity — to support agrowing proportion of dependants.Taken together, these realities imply thatCanada’s prosperity will depend, more thanever, on an innovative economy. Innovationdrives our ability to create more economic valuefrom an hour of work. The resulting productivitygrowth increases economic output per worker,creating the potential for rising wages andincomes, and thus for a higher standard ofliving. It is for this reason that businessinnovation delivers great benefit, not only forindividual firms, but also for society as a whole.Countries around the world have recognized theimportance of business innovation as theultimate source of competitive advantage andincreasing prosperity. Many governments aretherefore increasing support for innovation evenas they struggle to balance overall budgets.Significant efforts are being devoted to thedevelopment of new and more effective ways toencourage and support business innovation. Infact, just as businesses are challenged tobecome more innovative, so too are publicpolicy-makers.The federal and provincial governments play animportant role in fostering an economic climatethat encourages business innovation — forexample, by supporting basic and appliedresearch and related training of highly qualified,skilled people, and by providing substantialfunding through tax incentives and programsupport to directly enhance business R&D.For decades, Canadian business spending onR&D — a key input to many kinds of innovation— maintained a steady up-trend, evidence ofthe country’s economic and technologicalprogress. Other highly industrialized countrieswere doing the same, so R&D spending byCanadian businesses remained near the middleof the pack of our peer group of membercountries of the Organisation for EconomicCo-operation and Development (OECD), andwell behind leaders like the United States,Japan, Germany, Sweden and Finland (OECD2011). But until the collapse of the “techbubble” in 2001, our R&D gap, relative to theOECD average, had begun to narrow, driven byexceptionally strong R&D spending in thetelecommunications equipment sector asInternet and wireless infrastructure was rapidlybuilt out. Then, suddenly, the decades-long uptrendof business R&D in Canada stalled. In fact,business R&D spending (adjusted for inflation)has been falling since 2006 and is now below itslevel in 2001 (Figure 1.1).Research and development is a key ingredient ina great deal of business innovation and is alsoan essential contributor to Canada’sinternational competitiveness and productivitygrowth. The fact that Canada’s business R&Dmomentum stalled a decade ago and has notresumed is both alarming and unacceptable. It isurgent that business R&D in Canada startgrowing strongly again.Recognizing this, Budget 2010, Leading theWay on Jobs and Growth, announced acomprehensive review of federal support to R&Din order to optimize federal contributions toinnovation and to economic opportunities forbusiness (Department of Finance 2010a). Thedecision to undertake this review came in thewake of a series of reports — including State ofthe Nation 2008 (since updated for 2010) bythe Science, Technology and Innovation Council(STIC 2011), and Innovation and BusinessStrategy: Why Canada Falls Short, by theCouncil of Canadian Academies (CCA 2009) —which provided in-depth analyses of Canada’sweak performance in the interrelated areas ofbusiness R&D, business innovation andproductivity growth.1-2
Motivation and MandateFigure 1.1 Canadian Business Expenditure on Research and Development (BERD),1985–2010 (billions of 2000 constant dollars)16141210864201985 1990 1995 2000 2005 2010Source: OECD (2011).On October 14, 2010, the governmentappointed an independent panel to undertakethe review. The members of our Panel are:Thomas Jenkins (Chair), Executive Chairmanand Chief Strategy Officer, Open Text Corp.Bev Dahlby, Professor of Economics,University of AlbertaArvind Gupta, Chief Executive Officer andScientific Director, MITACS Inc.Monique F. Leroux, Chair of the Board,President and Chief Executive Officer,Desjardins GroupDavid Naylor, President, University of TorontoNobina Robinson, Chief Executive Officer,Polytechnics Canada.This report is the culmination of the ensuingyear-long review — an exercise focussed onenhancing federal government programming tofoster a more innovative Canadian economy,thereby improving the competitiveness ofCanadian firms and the productivity of theeconomy.The Panel’s MandateBuilding on the foundational work of the CCAand STIC, we were asked to conduct anassessment of key programs within thegovernment’s portfolio of initiatives in supportof business and commercially oriented R&D —specifically, the following:tax incentive programs such as the ScientificResearch and Experimental Development(SR&ED) programprograms that support innovative businessR&D, including general support, sectorsupport and regional support1-3
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Program Mix and DesignChapterProgra
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Program Mix and Designthe needs of
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Program Mix and Designcapital costs
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Filling the GapsChapterFilling the
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Filling the Gapscompetitive levels,
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Filling the GapsThe budgetary impli
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Filling the GapsAngel InvestmentAt
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Filling the GapsBearing this in min
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Leadership for InnovationChapterLea
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Leadership for InnovationThe approp
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Leadership for Innovationinnovation
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ConclusionChapterConclusion9We are
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Programs in the ReviewAnnexPrograms
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Innovation Canada: A Call to Action

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