As if Canada didn’t already suffer from a big enough complex about our neighbours to the south, here’s another reason to feel inferior: This country holds just 1.36 per cent of patents filed worldwide, compared to 30 per cent for the United States.
Why does it matter? According to the Conference Board of Canada, patents are a solid measure of a country’s capacity to innovate, since filing one is the first step toward commercializing new technologies.
In its 2009 report on the state of innovation, the Conference Board – which tracks not just patent filings, but also scientific articles, R&D spending and high-tech exports – gave Canada a D. It pointed out that, while we have world-class universities, teaching hospitals and research institutes, we’re doing a poor job of turning that science into marketable products – particularly exportable ones.
Which means that in ranking after ranking – from the World Economic Forum, The Economist and others – we are chronically behind innovation leaders like Sweden, Finland, Switzerland and, of course, the U.S.
Experts who’ve studied the country’s innovation deficit agree that a big part of the problem is a low appetite for risk that permeates our culture, from the private sector and governments right on down to lenders and educational institutions.
“Innovation by definition requires taking a risk,” says William Polushin, an adjunct professor at McGill’s Desautels Faculty of Management and director of its international competitiveness program. “We are uber-conservative.” Indeed, when he asks his McGill University business students how many of them plan to start their own companies after graduation, typically only a couple of hands shoot up.
That worries John Manley, head of the Canadian Council of Chief Executives.
“We need a national focus on this, and we need to really pull up our socks,” says the former finance minister, who is part of a private sector coalition looking at ways to boost innovation.
“There’s been way too much complacency and contentment – especially coming out of the recession and the financial crisis – that Canada has done well,” Mr. Manley says. “If we don’t get a handle on our innovation and productivity challenge, then we’re going to see our standard of living decline relative to others.”
That’s easier said than done.
Successive federal governments have thrown gobs of money at the problem. In its most recent budget, for instance, the Harper government dedicated what little new spending it announced to innovation initiatives: cash for research grants; tariff and tax breaks for manufacturers and smaller companies; and programs to speed up commercialization of academic research.
One incentive alone – the federal Scientific Research and Experimental Development tax credit (SR&ED) – is worth $3-billion a year.
In theory, smaller firms love the SR&ED, since it’s refundable to them – if they qualify, they get a cash infusion even if they don’t have any taxable income. But the application process is so complex, many don’t bother to apply.
For bigger companies, the credit isn’t refundable, which means that when they have no taxable income, it’s a wash.
Jay Myers, president of industrial lobby group Canadian Manufacturers & Exporters, thinks a more effective incentive would be extending the accelerated capital cost allowance, which is set to expire at the end of 2011. The allowance makes it easy for businesses to write off investments in new machinery and equipment.
“The key thing here is certainty,” Mr. Myers says. “As a business investing in innovation and technology, you need to be able to write your costs off as quickly as possible. That’s a huge addition to cash flow, and it’s cash flow that drives investment.”
Government initiatives alone won’t solve the problem, says Joseph D’Cruz, a professor of strategic management at the University of Toronto’s Rotman School of Management. “The challenge is for the private sector.”
