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December 29, 2015

Four New Year’s Resolutions for Canadian Innovation Policy

2015 has been an uneven year for Canadian innovation. Undeniably, much of the news has been negative. As reported both here at the DEEP Centre and elsewhere, Canada continues to lag behind other comparable countries in a number of key indicators of innovation performance. At the same time, declines in resource prices have exposed pre-existing weaknesses in other areas of the economy. While there have been some bright spots at the firm and sector level– chief among them the successful growth and IPO of Montreal-based Shopify, the (potential) revitalization of Waterloo-based Blackberry, and the growth of a series of niche high-value advanced manufacturing firms in Ontario – the broader picture moving into 2016 remains deeply uncertain.

With that in mind, this post offers a series of New Year’s resolutions for Canadian innovation policy in 2016. A number of these resolutions are connected to DEEP Centre publications and our ongoing research. Where applicable, I’d invite you to take a look at some of our more in-depth reports and recommendations available here on our website.

Re-Think Incentives

A new agenda in Ottawa provides an opportunity to re-think the government programs and incentives that constitute Canada’s innovation policy milieu.  For a number of years now, analysts have been highlighting Canada’s lagging performance in business research and development spending (BERD) in comparison to other OECD countries. At the same time, commentators have pointed to the Canadian policy mix – which relies heavily on indirect support for BERD spending via the Scientific Research and Experimental Development Tax Credit (SR&ED) – as a likely contributor to this under-performance.

Yet despite calls for Canada to move towards more direct spending to support business R&D, progress on this front remains limited. In this context, 2016 presents an opportunity to both review and rethink Canada’s innovation policy mix. Both best practices abroad and innovative and successful programs at home offer models on which Canada can build. And while some changes will undoubtedly come with a significant price tag, other types of policies – such as those promoting greater collaboration between private partners or between public research bodies and firms – could be relatively neutral or even lessen the burden on the public purse.

Focus on Scaling, but Don’t Forget Startups

Buoyed by a growing sense of optimism surrounding Canada’s startup ecosystem – particularly in emerging clusters in Toronto and Waterloo – in 2015 analysts, policymakers and practitioners shifted their focus from startups to scaleups. There are good reasons for this. High-growth firms account for a disproportionate share of job growth and contribute significantly to economic performance. But while the shift of focus toward the ‘art of scale’ is useful and necessary, it’s important that Canada not lose sight of the need to increase the efficiency and effectiveness of the support provided to our country’s broader base of entrepreneurs and startup companies.

Indeed, despite growing optimism surrounding Canada’s startup scene, a recent analysis by Stephen Tapp and Tyler Meredith in Policy Options shows that firm entry, exit and new entrepreneurship rates have all been declining in recent years. As Tapp and Meredith note, “reduced firm and labour turnover may well be contributing to our weak productivity performance and slowing trend economic growth.” Recent work by the DEEP Centre’s Kirill Savine highlights similar trends. Moreover, despite growing attention directed towards startups across jurisdictions, decline in Canadian new business creation is not an anomaly, with parallel trends evident elsewhere.

As highlighted in a series of recent DEEP Centre reports and our interactive ecosystem map, Canada now boasts around 150 business incubators and accelerators spread across the country. This base of institutions provides a strong infrastructure on which to build a more robust pipeline of startup firms in Canada, and more can be done to make these services more effective and transparent and to promote collaboration among various stakeholders in the broader ecosystem. You can find the full library of reports and recommendations here.

Find Ways to Make Better Use of Available Talent

There has been much talk about the presence of a series of “skills gaps” across Canada. And while some of this discussion likely reflects legitimate scarcity of particular skills in the labour market, it’s also clear that Canada retains under-utilized capacity stemming from a lack of adequate information on the part of firms and job-seekers alike.

Nowhere is this more obvious than in the job market for PhD holders. As noted in a recent report by the Conference Board of Canada, while most PhD graduates will eventually transition into fulfilling careers, graduates very often struggle in the period following graduation, due to a series of disconnects within the labour market.  In particular, employers in Canada often lack knowledge of the skill and expertise offered by PhD holders, while graduates themselves may lack the networks and tools to convey their competencies to potential employers. The result is that recent PhD graduates are often under-employed at the same time that firms are lamenting a lack of skills within the labour force.  And as the Conference Board notes, “the amount of economic benefit to be gained from increasing the number of PhDs in Canada depends on how effectively employers can utilize the PhDs’ skills and knowledge.”

Some organizations, such as MITACS, are already finding creative ways to bridge this gap. A not-for-profit organization, MITACS works to build connections between PhDs, universities and industry by supporting post-docs and research internships. The success of this program highlights the potential for better identifying and deploying existing skills and expertise in the labour market in a way that benefits both firms and job-seekers. More can be done on this front, and understanding how to bolster these connections should be a priority in 2016.

Think Seriously About the Strategic Role of Intellectual Property Rights in Innovation

The ratification debate surrounding the Trans-Pacific Partnership Agreement has ignited a much needed debate in Canada about the appropriate role and scope of intellectual property rights protections. While the ultimate fate of the TPP remains to be determined, debate surrounding the agreement has highlighted the clear need for a “Made in Canada” strategy that leverages IP for the purposes of promoting domestic innovation. Such a strategy should seek to prioritize the needs of domestic innovators and be based in a realistic understanding of Canada’s position as a significant net importer of IP. At the same time, Canada should consider innovative new policy approaches – such as the creation of a Canadian sovereign patent fund (SPF) – that could help strengthen Canada’s position. As I have argued previously, the case for a Canadian SPF is not a slam-dunk. But as the government continues to search for means to boost Canadian entrepreneurship and innovation, all policy options should be on the table.

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