Innovation Canada: A Call to Action

Innovation Canada: A Call to Actionovercome the disadvantage of small scale or tolower the barriers to getting started. Forexample, student internships in business canprovide the crucial first experience. In addition,many smaller R&D-focussed companies cannotafford to maintain in-house all the specializedexpertise and infrastructure they need, andmust rely on public sector labs and advisoryservices such as the Industrial ResearchAssistance Program (IRAP). Government as alead customer may also help a young innovativebusiness achieve the production scale andcredibility to compete in the wider market.Moreover, public sector contributions to seedand venture capital may be needed to risk-sharein the early stages of a company’s developmentand thereby enable many technology-basedcompanies in Canada to grow to a viable size.Public intervention has costs as well as benefits.The taxes raised to fund government programsdiminish economic performance throughadverse effects on incentives to work, save andinvest. All programs generate costs ofadministration and compliance, which must benetted against the benefits. Just as there aremarket failures, there may also be “governmentfailures.” These may be due to inadequateinformation or to political pressure — forexample, favouring certain vested interests,creating too many small-scale programs orcontinuing to support activities that should beterminated.All of these considerations need to be borne inmind when deciding whether governmentintervention to correct a perceived marketfailure is warranted. These issues are addressedconcretely in subsequent chapters. Theremainder of this chapter describes the universeof programs addressed by the Panel.Profile of FederalGovernment Support forBusiness R&DThe federal government supports business andcommercially oriented R&D through a broadarray of programs, 1 each of which varies acrossa number of salient features:input supported — ideas and knowledge;talented, educated and entrepreneurialpeople; networks, collaborations andlinkages; and capital and financingtype of activity supported — basicresearch, applied research, experimentaldevelopment and commercializationform of support — tax incentives, repayableor non-repayable grants and contributions,provision of services, and procurement ofresearch and of innovative goods and serviceseligible recipient — support provideddirectly to a business versus support to otherorganizations conducting commerciallyoriented R&D activitiessize — program budget, number of projectssupported, amount of administrative staffand maximum assistance providedscope — national, sectoral and regional.To capture this variety, the Panel established agovernment-wide program database covering60 programs, delivered by 17 federal entities(Figure 3.1). 2 The Panel’s findings are limited tothe 60 programs, which encompass most butnot all federally supported business andcommercially oriented R&D (Box 3.1). Thisexercise is the first of its kind, and is an essentialstep toward conceptualizing the diversity offederal business R&D programs as an overallportfolio of support.1 “Programs” are broadly defined in this review and include tax credit support, direct spending programs, venture capitalinvestments and federally performed R&D.2 Program expenditure information in the database and cited throughout this report is based on figures provided in July 2011by the departments and agencies that administer the programs within this review. Program expenditure information wasavailable for 58 of the 60 programs.3-2