Canada’s superclusters await fate in 2022 federal budget as funding dwindles

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It was the centrepiece of the federal Liberal government’s first innovation strategy: a $950-million “supercluster” program aimed at bringing together academia and business to collaborate in unprecedented ways, spinning out companies and creating jobs, economic growth and intellectual property.

Critics questioned it from the start as a potential superboondoggle with vague objectives and inadequate focus on keeping valuable intellectual property (IP) in Canada. The Parliamentary Budget Office in 2020 criticized the program for being slow to roll out and unlikely to reach job targets. Many industry groups questioned whether it would improve Canada’s chronic weaknesses: productivity and research-and-development spending. The economic disruption of the pandemic didn’t help.

With Ottawa’s committed funding set to end next March, will Thursday’s budget give superclusters a supershot of funding to keep going – or could other priorities sideline the controversial program?

The non-profit agencies at the core of each supercluster are pushing for the former. The groups, focused on digital technology, protein industries, advanced manufacturing, ocean industries and bringing advanced technology to supply chains, say they’ve kept their end of the bargain. The five agencies have requested $1.5-billion in new funding, The Logic reported on Monday, and The Globe and Mail has confirmed.

“The superclusters have exceeded expectations,” Jayson Myers, chief executive officer of the agency the Next Generation Manufacturing Canada, said in an interview. “If there isn’t a clear signal the program is continuing, that makes it difficult for the organizations themselves to keep operating and building on the momentum we’ve developed.”

The Liberals did not mention superclusters in their 2021 election platform, nor was the program in Prime Minister Justin Trudeau’s mandate letter to Innovation Minister François-Philippe Champagne last December. Instead, the letter referred to a new program modelled on the U.S. Defence Advanced Research Projects Agency (DARPA), the body that funded such initiatives as the internet.

A source familiar with thinking within the Finance Department said the future of superclusters is not a discussion the department wants to have now, as many other priorities face the government in the third year of a pandemic and a geopolitically fraught era. It’s also hard to properly evaluate a program that is meant to take a decade or more to deliver valuable results. The source said the government could allocate some funding to keep it going for now if there is political will. The Globe is not identifying the source because they were not authorized to discuss the matter publicly.

Meanwhile, the Innovation, Science and Economic Development department (ISED) has teed up a case for more funding. Internal ISED documents obtained by The Globe say the program has delivered on expectations and should be continued. A departmental overview in December found the supercluster agencies had approved 398 projects, invested $1.8-billion – just $673-million from Ottawa and the rest from participants – and fuelled the creation of hundreds of IP assets.

A summary analysis for ISED by consultancy EY in January estimated the superclusters have created 23,877 full-time jobs, and projects they could create up to 58,800 after 10 years. An outside analysis of global cluster programs commissioned by ISED commended the Canadian program’s design as “pioneering,” saying it “has few direct natural comparisons.”

“The superclusters are showing strong results and exceeding program targets in many areas,” said Alex Wellstead, a spokesman for Mr. Champagne. “We want to make sure they continue their important work.” He declined to comment on what the budget may have in store.

Meanwhile, a February letter to Mr. Champagne from a three-person advisory panel argues strongly in favour of extending the program, but with tweaks. Those include a focus on growing and developing homegrown companies into large entities, increasing industry’s share of funding and zeroing in on revenue-generation as a clear marker of success, and sharpening its emphasis on commercialization of IP and data “to create benefits for Canadians and Canadian headquartered firms,” the panel wrote.

“The results to date have exceeded expectations and targets that were set out, and frankly are quite impressive,” panel member Pierre Boivin, president of investment firm Claridge Inc., said in an interview. “Our committee has recommended it should continue because it’s counterproductive to stop something five years in.”

That view is shared by Catherine Beaudry, who holds the Canada Research Chair in Management and Economics of Innovation at Polytechnique Montreal. She says Canada needs stability in its innovation programs. “This was always a project that would pay up in the longer term, just because some of the technologies are so embryonic,” she said.

But Ottawa intellectual property lawyer Natalie Raffoul said she’s concerned about the involvement of large, IP-savvy foreign companies in the program, and she likens them to “foxes we are bringing into the henhouse.” She said the program “needs to expose the metrics on patenting activity” to ensure that the Canadian businesses retain enough IP rights.

That call was echoed by Daniel Munro, senior fellow at the Innovation Policy Lab at the University of Toronto’s Munk School of Global Affairs and Public Policy. The superclusters program can feel like a “press release generator” for funding announcements, he said, and would benefit from more transparency. But given the long timelines of research and development, they “should have some space to grow without a whole lot of scrutiny.”

Sean Mullin, executive director of the Brookfield Institute for Innovation and Entrepreneurship, said: “The biggest risk here is either going, ‘Oh, this failed, let’s cancel it,’ or, ‘This is working, let’s not unpack this.’ ” With a Canadian-style DARPA becoming a key part of the Liberals’ innovation agenda, he added, Ottawa risks spreading its R&D efforts too thin “in an uncoordinated and potentially contradictory way.”