Creativity lies at the heart of modern competitiveness. Innovation is the ability to create new products and services, to produce existing products in new ways, and to develop new markets. It drives productivity; it drives growth; and it drives our living standards. The problem is that Canada is not an innovation leader.
In 2007, the Canadian business sector ranked 14th among Organization for Economic Co-operation and Development countries in business R&D expenditures as a percentage of the economy. Canadian business R&D spending is only 1 per cent of GDP, well below the OECD average of 1.6 per cent. More troubling, it is roughly half of what the U.S. spends and even further behind countries such as South Korea, Finland and Sweden. Simply to raise Canadian business R&D spending to the OECD average would require an additional $10-billion annually.
In a world where competitiveness is increasingly defined by creativity, Canada cannot sustain above-average living standards and below-average innovation investment. Why is it that Canada lags so far behind our OECD competitors in almost every measure of business sector innovation? And what needs to change?
We know for certain that it is not a stifling macroeconomic environment. Compared with most OECD countries, Canada has a better fiscal situation, lower debt as a proportion of the economy, low and stable inflation, and a very sound banking system. The statutory corporate tax rate in Canada is now well below the United States. And Canada’s tax incentive for R&D is generally cited to be among the most generous.
We also know that it is no longer a lack of public-sector investment in research. As the result of massive investments beginning in the late – 1990s, public-sector investment in research as a proportion of the economy, largely delivered through universities, is now higher in Canada than in the United States and the vast majority of OECD countries.
Canada lags innovative economies in two important supporting infrastructures: venture capital, and information and communications technologies (ICT). Canada does not have a strong venture capital sector, and this clearly inhibits our ability to create and build innovation-driven firms. We significantly lag many OECD countries in ICT applications, particularly in the service sector, while all evidence points to ICT intensity as a driver of business productivity.
Where can we innovate to change the status quo? First, we need better engagement mechanisms to keep productivity and innovation on the “front burner,” continually holding up a productivity and innovation “mirror” of global best practices to Canadian business and Canadian governments. Structural change will only happen if it is the ongoing focus of private sector management, boards of directors and governments.
