Innovation Canada: A Call to Action

The Context of the Reviewspreads widely, it is of relatively little economicor social significance. In the context ofproductivity growth, the process of innovationdiffusion and adaptation is most important,since most innovation that occurs in any givenarea or jurisdiction is through adaptation ofsignificant innovations originating elsewhere(CCA 2009, p. 27). The adoption/adaptation byan individual enterprise of a new or better wayof doing something is therefore also recognizedas a form of business innovation — indeed, themost common. It often requires substantialcreativity to redesign business processes,organization, training and marketing to takeadvantage of the adopted innovation.Canada has a business innovation problem. Themost telling indicator is Canada’s subparproductivity growth, which has averaged a mere0.6 percent over the 2000–2009 period, or lessthan half the average of 1.5 percent for allOECD countries (OECD productivity database,accessed November 2010). Relative to theUnited States (US), as depicted in Figure 2.1,labour productivity in Canada’s business sectorhas fallen from approximately 93 percent of theUS level in 1984 to 71 percent in 2009 — aquarter-century of relative decline that cannotbe explained by temporary or one-time factors.The Canada–US gap has been analysedstatistically in terms of the three principal factorsthat account for labour productivity growth:workforce composition — changes in thelevel of education, training and experience ofthe workforcecapital deepening — growth in the amountof capital used to support workersmultifactor productivity (MFP) growth —a residual measure that captures all otherfactors that affect productivity. MFP reflectshow effectively labour and capital areemployed jointly to produce output.Investment by businesses in R&D is oneimportant contributor to long-run MFPgrowth.Analysis by Statistics Canada of the evolution ofthese three factors in Canada and the US overthe years from 1961 to 2008 shows conclusivelyFigure 2.1 Relative Level of Labour Productivity in the Business Sector, 1947–2009(Canada as a percentage of the United States)95%90%85%80%75%70%1947 1951 1955 1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007Source: CSLS (2011a).2-3