Innovation Canada: A Call to Action

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Innovation Canada: A Call to ActionFigure 2.2 Sources of Canada–US Gap in Average Annual Labour Productivity Growth(differences in percentage growth rates: Canada minus the US) a1961–2008 1961–1980 1980–2000 2000–2008Gap in labourproductivitygrowth -0.3 0.4 -0.4 -1.9(i) Capitaldeepening 0.4 0.8 0.2 0.1(ii) Workforcecomposition 0.2 0.4 0.1 0.1(iii) Multifactorproductivity -0.9 -0.9 -0.6 -2.1aThe numbers in the first line of the table — the difference between Canada and the US in average annual labourproductivity growth — are equal to the sum of lines (i) through (iii), which decompose the productivity growth gap intocomponents related to capital intensity, workforce composition and MFP (subject to rounding).Source: Baldwin and Gu (2009).that Canada’s productivity growth problemis due to persistently weak MFP growth,particularly during the past decade (Baldwinand Gu 2009; also see Figure 2.2). Although amultiplicity of factors is involved, longer-termMFP growth trends reflect the pace of businessinnovation (CCA 2009, pp. 36–44). It followsthat Canada’s subpar productivity growth islargely attributable to relatively weak businessinnovation. (There are of course a great manyhighly innovative Canadian businesses but,relative to many other advanced countries,they play a proportionally smaller role inCanada’s economy.)Innovation and R&DInvestment by businesses in R&D is a key inputto many kinds of innovation (Box 2.2). In viewof the relatively weak R&D spending byCanadian businesses (Box 2.3), it is notsurprising that MFP growth has also been weak.The great majority of business R&D isundertaken to support defined marketobjectives and is thus at the “development” endof the R&D spectrum. (Activities characterizedas “experimental development” make up about80 percent of business R&D spending inCanada; see Statistics Canada 2009.) Althoughthe business sector accounts for a much smallerpercentage of total R&D in Canada than incountries such as the US, Germany, Japan orSweden, business is nonetheless the largestR&D performer in the country, accounting formore than 50 percent of the total (OECD 2011).2-4
The Context of the ReviewBox 2.2 Defining R&DThe Frascati Manual (OECD 2002), first published in 1963, is the basis for the OECD’sdefinition of R&D, which emphasizes the creation and novel use of knowledge. Themeasurement of R&D expenditure includes both current costs (labour costs and non-capitalpurchases of materials, supplies and equipment) and capital costs (land and buildings,instruments and equipment, and computer software) devoted to R&D, which covers threeactivities:Basic research is experimental or theoretical work undertaken primarily to acquire newknowledge of the underlying foundation of phenomena and observable facts, withoutany particular application or use in view. Applied research is also original investigationundertaken in order to acquire new knowledge. It is, however, directed primarilytowards a specific practical aim or objective. Experimental development is systematicwork, drawing on existing knowledge gained from research and/or practical experience,which is directed to producing new materials, products or devices, to installing newprocesses, systems and services, or to improving substantially those already produced orinstalled. (OECD 2002, p. 30)The annual spending on R&D performed by a country’s business sector is referred to as BERD(business expenditure on R&D), while that performed by the higher education sector isreferred to as HERD (higher education expenditure on R&D). Reference is often made to“BERD intensity” or “HERD intensity,” defined as the value of BERD or HERD expressed as aproportion of gross domestic product (GDP).In the above definition of R&D, the emphasis on knowledge creation and novel use hasimportant implications for the classification of scientific activities as “R&D” as distinct from“scientific or technological services.” For example, the search for reserves of oil and gasqualifies as R&D only if new survey methods or techniques have been developed toundertake the search. Similarly, exploratory drilling is not R&D, but there may be caseswhere the development of new drilling methods or techniques would qualify as R&D.While the definition of R&D has remained unchanged since the first edition of the FrascatiManual, its methodological guidelines have expanded and now include greater attention tothe measurement of R&D in services. The Frascati Manual is accepted by consensus of allOECD countries, thus ensuring international agreement on the definition of R&D, as well asthe application of guidelines for its measurement. There is nevertheless still some room fornational differences of interpretation as well as variation in the depth and specificity ofdata collected by statistical agencies for indicators such as HERD and BERD. So while OECDdata allow for meaningful international comparisons of R&D activity, perfect cross-nationalcomparability remains an aspiration and not yet a reality.2-5
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Program EffectivenessFigure 5.6 Per
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Program Mix and DesignChapterProgra
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Program Mix and DesignBox 6.1 Direc
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Program Mix and Designthe needs of
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Program Mix and DesignFigure 6.3 Ta
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Program Mix and DesignBox 6.3 Stack
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Program Mix and Designcapital costs
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Program Mix and Designportion of th
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Filling the GapsChapterFilling the
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Filling the GapsBox 7.1 Use of Proc
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Filling the GapsBox 7.2 Canadian In
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Filling the Gapscompetitive levels,
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Filling the GapsBox 7.4 Institutes
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Filling the GapsThe budgetary impli
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Filling the GapsSuch concerns are i
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Filling the GapsAngel InvestmentAt
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Filling the GapsWith the foregoing
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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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Programs in the ReviewDepartment or
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Innovation Canada: A Call to Action
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