Canada need not reinvent the wheel to successfully push companies to be more ambitious, and to take on high-risk, high-reward R&D projects.Brian Jackson
Justin Trudeau's Liberal government has a daunting list of challenges for the New Year, including resettling tens of thousands of Syrian refugees, reconciling with indigenous people, climate change and electoral reform.
All of these projects are worthy of its attention.
But if Ottawa is serious about building a more productive economy for future generations of Canadians, it's going to have to get serious about innovation, and soon.
Every two years, the federally appointed Science, Technology and Innovation Council issues a status report on how Canada is doing in the global innovation race. The council has now produced four such reports, the latest released this fall. And each time, it's the same distressing finding: Canada's business sector is not stepping up to the plate. Companies are investing less now in research and development than they were in 2007, and every year they're falling further behind the countries that lead the world in generating great ideas and economic growth.
"Canada is not globally competitive in business innovation," the State of the Nation 2014 report bluntly declares. "In the components that define success in this area, Canada is falling further behind its global competitors and facing a widening gap with the world's top five performing countries."
The key metric is a tally of business R&D spending relative to the size of the economy – business enterprise expenditures in research and development, or BERD. Since 2006, Canada has tumbled to 26th spot from 18th spot among OECD countries, far behind the leaders – Israel, South Korea, Japan, Taiwan and Finland. Canada is also losing ground against the United States, its main trading partner.
Overall business spending on R&D peaked in 2011 at $15.2-billion, and has declined every year since, according to the federal report, released in late November. Spending was roughly $14-billion in 2014. And 2015 is shaping up even worse as the commodities price slump causes resource companies to slash investments.
That's not to say Canada does not perform well on some measures. We're good at producing scientists, engineers and other highly educated talent. Relative to GDP, we also generate our fair share of high-quality research and venture capital.
Ottawa and the provinces have tinkered with their policies in recent years in an effort to spur private-sector R&D. For example, the federal government has modestly shifted some of its R&D support to more direct spending and away from tax credits, while pushing the National Research Council to do more business-driven research.
But it's apparent that something more dramatic is needed. The Science, Technology and Innovation Council report says: "Doing the same things in the same ways will not work."
The solution, according to the council, is for governments to work more strategically with businesses, colleges and universities toward common goals.
Canada need not reinvent the wheel or the Internet to make this happen. A time-tested model already exists for successfully pushing companies to be more ambitious, and to take on high-risk, high-reward R&D projects.
It's Germany's Fraunhofer network of 67 government-backed specialized applied research institutes. The network of labs, now 66 years old, is credited with helping Germany's manufacturing sector thrive in a low-wage world and developing such disruptive technologies as the MP3 digital format for music.
Inspired by Fraunhofer, the U.S. is building a similar network of institutes. The budget bill passed by Congress in December includes $300-million (U.S.) to support the creation of a network of 45 targeted research institutes across the country. Four are already up and running, including one in Youngstown, Ohio, focused on innovations in 3-D printing and another in Chicago specializing in digital manufacturing.
In the Fraunhofer model, labs are paired with academic institutions to do applied research. A third of its work is funded by companies for proprietary research. Federal and state governments put up the rest. It has 23,000 employees and does more than 12,000 projects a year, generating as many as 500 patents a year. Sometimes it works one-on-one with companies; other times it puts together groups of rival companies to work through a common technology challenge, or directs its own projects.
Innovation was little more than a footnote in the Liberal election platform. But it's not too late to put it near the top of the list of resolutions for 2016 and beyond.
THE outlook