The IPL newsletter: Volume 11, Issue 222

INTRODUCTION

This newsletter is published by The Innovation Policy Lab at the Munk School of Global Affairs, University of Toronto, and sponsored by the Ministry of Research and Innovation. The views and ideas expressed in this newsletter do not necessarily reflect the views and policies of the Ontario Government.

S&T Strategies of Six Countries: Implications for the United States

National Academies Press
The U.S. will need to shift from a national S&T strategy predicated on the 1950s paradigm of “control and isolation” to a global innovation environment focused on “engagement and partnerships,” according to this report. S&T Strategies of Six Countries: Implications for the United States provides an overview of national science and technology strategies in Japan, Singapore, Brazil, China, India and Russia, and concludes that the U.S. should focus on improving its balance of “top-down” and “bottom-up” innovation. The report also suggests that the U.S. should improve its global exchanges in education and R&D talent, international and national recruitment of R&D talent, and multinational corporate collaborations.

The Action Plan: 10 Steps to Boost Productivity, Create Jobs and Raise Canadian Incomes

Innovation: Coalition for Action on Innovation in Canada
Canada has a lot going for it in today’s global economy. Its traditional resource base is in high demand. Its population is among the best educated in the world. Canadian communities are beacons of diversity, filled with global citizens. Its public finances are relatively strong. Its tax rates are increasingly attractive. Its markets are open. Canada’s businesses are moving more confidently into a wider range of international markets. As a result, Canadians today enjoy an enviable standard of living and quality of life. But it cannot afford to be complacent. The country’s future prosperity is threatened on three fronts:

1. Global competition. The global economy is being transformed by the rise of China, India and other
emerging markets. This creates opportunities for Canadian exporters and investors. But the continuing
spread of information and communications technologies means that high-value knowledge work can be
done anywhere. Beyond traditional role as hewers of wood and drillers of oil, every single Canadian
enterprise is faced with a relentlessly intense new level of competition. In this dynamic economic
environment, the country must seek to understand what it can do better than others, and how it
can maintain a competitive edge.

2. Demographics. As in other developed nations, Canada’s population is aging. The growing proportion of
seniors will add to the demand for public services, especially health care. Fewer working, taxpaying Canadians
will carry the load, and employers will find it increasingly difficult to recruit skilled labour. The only way to avoid a
future of slower economic growth and higher taxes is to enable each and every Canadian to create more value
and earn more money for each hour of work.

3. Productivity. A prosperous future therefore requires rapid growth in productivity, the basic measure of
how much value each worker creates. Recent performance leaves much to be desired. Over the past
decade, productivity grew at an annual pace of just 0.7 percent. That is well short of the pace in the
United States, and half the pace Canada itself recorded in the previous two decades. If this does not improve
dramatically, the potential for economic growth will shrink and prosperity will suffer.

The October 2009 roundtable identified seven key themes for action on innovation: improving tax policy; nurturing start-ups; strengthening business-academic links; building the innovation talent pool; reshaping framework policies; developing innovation clusters; and ensuring effective ongoing advocacy for innovation.

Ten Steps Toward a More Innovative Canada

Reform tax support for research and development.
As pointed out by the Council of Canadian Academies, Canada is unique in its high degree of reliance on tax-based incentives to support research and development, primarily through the Scientific Research and Experimental Development (SRED) tax credit.
The current system of tax credits is a powerful tool, but is inconsistently applied across industries and sizes of companies. Three key issues have been identified: the lack of refundability except for enterprises that meet the narrow definition of “Canadian-Controlled Private Corporations” (CCPCs) makes the credits useless to unprofitable, publicly traded companies; the definition of eligible research is restrictive and excludes much innovation-related investment; and the administration of the program by the Canada Revenue Agency is often adversarial and unpredictable.The federal government should launch an immediate and thorough review of the SRED criteria, definitions and administration to make the credits more broadly, consistently and predictably accessible..

Expand the pool of risk capital.
While there are thousands of technology companies in Canada, the vast majority are small businesses. Roughly 200 companies headquartered in Canada account for the vast majority of private sector R&D spending. This group of companies represents the future of business innovation in Canada, yet the base is extremely fragile. One major impediment to growth is a persistent shortage of risk capital through the funding cycle, from seed capital through the venture stage to mature growth. The result is that better-funded foreign companies often become acquirers of financially weak Canadian counterparts, even where Canadian enterprises have the better and more innovative intellectual property. Building a larger pool of risk capital in Canada is essential if we are to create and grow tomorrow’s successful enterprises. One approach that is gaining favour in Canada and other jurisdictions is the establishment of government-sponsored co-investment funds that invest in innovative companies alongside private-sector investors.

Adopt the world’s strongest intellectual property regime.
A robust climate for innovation is only possible if Canada’s regulatory processes encourage the development and launch of innovative products and if our laws ensure that inventors and those who invest in their ideas can fairly reap the rewards of their work. Canada should aim for a reputation as the best place in the world in which to research, develop and bring to market new products and processes. To achieve that goal, it is imperative that Canada seize current opportunities to improve its protection of intellectual property and thereby create a more attractive environment for investment in innovation.

Strengthen business-academic links.
Canadian businesses and educational institutions engage in a wide variety of cooperative ventures, but their efforts to collaborate often have been stymied by barriers ranging from “hard” issues of funding and intellectual property ownership to less tangible considerations such as differences in expectations, culture and behaviour between academia and the private sector. Several mechanisms for bringing academic researchers and companies together already exist, such as the Strategy for Partnerships and Innovation at the Natural Sciences and Engineering Research Council, the Networks of Centres of Excellence and the College and Community Innovation programs of the three major granting councils. In particular, business and academia should consider a pilot program that would identify up to 25 partnerships that would be nurtured through access to top coaches and other support.

Tap private-sector expertise when spending public money.
The federal government alone spends billions of dollars annually to support research and innovation through granting councils, agencies, direct grants and tax expenditures. In recent years the government has sought to increase private-sector representation at the granting council level – an excellent example being the Private Sector Advisory Board established by the Networks of Centres of Excellence Secretariat. We strongly endorse this approach and encourage more members of the business community, as well as retired executives, to volunteer their time and expertise in support of these activities.

Speed adoption of innovative products and services.
Canadian companies cannot hope to succeed in the 21st century global economy by relying on 20th century technology. Yet Canada ranks only middle of the pack by OECD standards in business investment in new machinery and equipment as a share of GDP. Larger companies that compete internationally tend to be the leaders in adopting new productivity-enhancing technologies. Smaller firms and those facing less intense competition are often slower to invest in new equipment and processes, including advanced information and communications technologies (ICTs) that would allow them to seize new business opportunities. Selective tax incentives to improve private-sector uptake of ICTs would clearly help, but cannot be the only solution. Even more important is
heightened private sector recognition of the need and potential for productivity improvement – and, conversely, of the dangers of being left behind as global markets become increasingly integrated, driving new products, services, processes and business models.Governments in Canada must become partners in innovation by giving innovative new products and services,
particularly those developed in Canada, a trial platform and helping them to achieve the scale and stature needed to penetrate global markets.

Launch a National Learning and Innovation Initiative.
Developing the skills, talent and innovation capacity of individual Canadians is the best way to promote longterm sustainable economic growth. While education is a provincial jurisdiction, improved learning outcomes are a national imperative. Canada has a strong record in ensuring access to basic education for all, and one of the best in the world in terms of participation at the post-secondary level – yet too many children fail to complete high school, and too many young people lack the literacy and numeracy skills required to function in the workplace. The federal, provincial and territorial governments should agree on ambitious goals for learning that could include: a 90 percent high-school graduation rate with tracked programs to age 21 for the remaining 10 percent; expanding post-secondary enrolment in science, engineering and business education programs; ensuring that all researchers and inventors have access to people with the entrepreneurial skills and commerce competencies needed to drive successful commercialization; and increasing per capita graduation rates at the Master’s and Ph.D. levels to match or exceed those in the United States.

Seek out the best and brightest
To innovate and prosper within a competitive global economy, Canada must continue to grow as a champion of diversity, aiming to be a country in which people from all nations can live, learn and work together.Through the Canada Excellence Research Chairs program, the federal government has taken important steps to attract the world’s top researchers in four priority areas: environmental sciences and technologies, natural resources and energy, health and related life sciences and information and communication technologies. The research conducted by these global leaders will both spur innovation in Canada and help to make it a magnet for high-potential students from around the world.

Nurture and strengthen innovation clusters
Strong and growing clusters of interrelated industries and institutions are a driving force behind innovation and rising productivity. There is no single or simple recipe for creating and developing innovative clusters; some emerge from local networks of small- and medium-sized firms, while others rely on a keystone company or post-secondary institution that acts as an anchor by spinning off new businesses and attracting investment. A strong business and research environment, a plentiful supply of specialized labour and a range of government policies all are important. But local factors play key roles in cluster development, and framework policies therefore must be flexible. Federal and provincial governments should align their existing policies and spending to support the development of both regional and local clusters.

Ensure ongoing advocacy for innovation
Innovation must reflect an ongoing commitment and effort by individuals and organizations in every sector of society. Government policy should support innovation and avoid creating barriers to creative behaviour, but innovation will be driven in the end by what researchers discover and what businesses do with their discoveries.