Companies with well-defined innovation policies and practices show higher long-term growth in revenue, profits and company worth, according to a Conference Board of Canada study.ANDREA COMAS/Reuters
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Budgets come and budgets go and they almost always include a nod to innovation, but rarely do they actually do anything to encourage more of it. Too often, what gets slotted by Canadian governments as innovation policy is really just industrial policy dressed up with "research" or "technology" in the title.
Not since Jean Chrétien invested massively to create a university research climate in Canada worthy of a G7 country has any federal government attempted a radical rethink of innovation policy. There was hope Stephen Harper's government might take a stab at it, after calling on software executive Tom Jenkins to chair a 2011 panel on the topic. But the results are thus far disappointing.
In last year's budget, Finance Minister Jim Flaherty overhauled the $3.6-billion Scientific Research and Experimental Development (SRED) tax credit program. Too many companies were abusing the program to reduce their tax burdens without producing much real research or innovation. But in slashing the credit and restricting eligibility, Mr. Flaherty may have thrown out the baby with the bathwater.
Mr. Flaherty promised to reinvest the savings from the scaled-down SRED back into innovation policy. But he does not appear to be living up to that promise. Thursday's budget contains only a smattering of small-ball innovation measures, requiring little upfront investment by the government.
One of the budget's most promising initiatives is a three-year pilot program to provide vouchers to small businesses that they can use to "purchase" research or business development services at universities or non-profit research institutes. For start-up firms without the wherewithal to conduct expensive research in-house, the new program will help them test and commercialize their products and ideas. But with a budget of only $20-million spent over three years, it is far too modest to spur much entrepreneurship.
Mr. Flaherty also announced $121-million to be spent over two years for the National Research Council in order to "better position the NRC" to help businesses in their innovation efforts. The budget refers to this as a "new approach" but says the details will be announced "in the coming year." The NRC has been supporting business innovation for decades – Nortel would not have existed without it. But its mandate may be even more closely tied to helping companies invent and commercialize new products. Stay tuned.
The budget reiterates the government's plan to provide $400-million in venture capital funding over seven to 10 years, which is projected to spur about $1-billion in private investment in so-called funds of funds. But the sums involved are too small to generate the critical mass of VC activity Canada now lacks.
The rest of the innovation measures outlined in the budget involve the renewal of multi-year funding for existing agencies and programs, including Genome Canada, Atomic Energy Canada Limited and Sustainable Development Canada. About $200-million over five years has been allotted for investments in advanced manufacturing in Ontario, but the money will come out of the budget of the Federal Economic Development Agency for Southern Ontario. At barely $40-million a year, it's no game-changer.
To be sure, Mr. Flaherty has a deficit to slay. But Canada's lagging performance in innovation threatens the country's future prosperity. On innovation policy, he has over-promised and under-delivered.
Konrad Yakabuski covers policy for The Globe and Mail from Toronto.
Konrad Yakabuski