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May 21, 2013

Canada’s STIC report – less than stellar reviews

Earlier today the Federal Government’s Science, Technology and Innovation Council  (STIC) released its 2012 “state of the nation” report and, while not unanticipated, it contains a heavy dose of criticism. In particular, the report notes that “Canada continues to tread water as a mid-level performer in science, technology, and innovation,” with significant, and ongoing, deficiencies identified in private sector investment and research development. This isn’t the performance one would associate with a country so richly endowed with human and institutional resources as Canada is.

However, the report is “just another” downcast appraisal of Canada’s innovation ecosystem, and follows a rather long list of similar pronouncements including those by the oft-referred to Jenkins Report, the Council of Canadian Academies and the Conference Board. Each identifies a similar set of underperforming Canadian metrics, notably as it relates to innovation, productivity and growth.

As I write in the DEEP Centre’s April 2013 Report “Analyzing the Health of Canada’s Economic Ecosystem,” across various measures of economic competitiveness and innovation, Canada falls far short of the top-tier and is increasingly moving down the ranks. In it I note that “(while) Canada is still ranked far ahead of high-performing industrial economies such as Germany (in the 2012 Global Innovation Index), providing evidence that we are doing some things right, one might question where the sources of competitiveness and future growth will come from given Canada’s 25th place ranking in human capital and research. In particular, our 49th place ranking in per capita spending on  education, 46th place in the percentage of science and engineering students, and 20th place in access to ICTs are glaring weaknesses for an economy like Canada’s and help to explain the country’s growing (innovation and economic) challenges.”

In short, it’s excruciatingly clear that we have a problem related to innovation and broadly measured economic competitiveness. And in a global economy where emerging economies such as China, Brazil and India are spending massive amounts in attempts to kickstart domestic innovation efforts, it’s clear that standing still isn’t good enough.

Today’s STIC report needs to be interpreted by policy makers as a clarion call for a smarter approach to stimulating innovation in Canada. In particular, the report focuses on Canada’s declining performance on business R&D investment, which as a share of GDP has now seen it drop to 25th of 41 economies.  An unsophisticated menu of low corporate taxes, SRED and capital credits is proving insufficient as incentives for increased business investment.

How can this be addressed?

While there’s no single solution, Anthony and I have just completed a review of the primary inhibitors to SME growth and innovation in Canada (to be released this week), and several of the recommendations we make are relevant to the discussion related to business R&D.

Notably, we conclude that Canadian policy-makers can make a significant contribution to an improved climate for innovation and growth through the following:

– Tax policy reform that incentivizes growth rather than size;

– A focus on building management competencies as a medium-term route towards better decision making and more active risk adoption;

– The liberalization of competition in Canada’s telecommunications sector as a means of lowering the costs of collaboration and new technologies;

– And the active development of research partnerships between academia and small and medium sized firms.

Two of those recommendations (management training and academic relationships) are easier fixes than the other two (tax and competition policy), however unless we move beyond risk averse, incremental strategies it’s likely that we’ll continue to bemoan our status as a struggling innovator while others continue to move ahead.

On innovation, and on Canada’s economic performance as a whole, we need real leadership and foresight to ensure that we’re up for the task of competing in a hyper-competitive global innovation economy.

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The Centre for Digital Entrepreneurship and Economic Performance turns research findings into practical insights and tools for stimulating innovation, entrepreneurship and job creation.