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Canada struggling to capitalize on research and development sector

The latest report on the state of research and development in Canada calls to mind Lewis Carroll’s Red Queen, who famously had to keep running at top speed to stay in one place.

The problem is that Canada’s innovation efforts may not amount to even that much, as other countries surge forward with investments that leverage science and technology and reap the economic rewards.

“We’re now at a stage where we’d almost have to double our investments in order to catch up to the leaders,” said Max Blouw, a former president of Wilfrid Laurier University, who chaired the panel that produced the report, set for release on Tuesday by the Council of Canadian Academies.

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Much of the 244-page document draws on data from before the most recent federal election, but the trends clearly illustrate the challenge for the current government, which has trumpeted its efforts to boost innovation.

While Canada remains strong in terms of the quality and impact of its scientific output, it is lagging farther and farther behind in its ability to commercialize that output and generate wealth, the report found.

LOSING GROUND

For close to two decades Canada’s total investment in research and development (including government, business and academic sectors) has been dropping as a percentage of its economic productivity (GDP). In contrast, average investment by member states in the Organization for Economic Co-operation and Development, which includes other free-market economies, has been rising steadily.

Gross domestic expenditures on R&D (GERD)

As a % of GDP

2.4%

2.3

OECD

2.2

2.1

2.0

1.9

Canada

1.8

1.7

2000

2002

2004

2006

2008

2010

2012

2014

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: THE COUNCIL OF CANADIAN ACADEMIES (data via oecd)

LOSING GROUND

For close to two decades Canada’s total investment in research and development (including government, business and academic sectors) has been dropping as a percentage of its economic productivity (GDP). In contrast, average investment by member states in the Organization for Economic Co-operation and Development, which includes other free-market economies, has been rising steadily.

Gross domestic expenditures on R&D (GERD), as a % of GDP

2.4%

2.3

OECD

2.2

2.1

2.0

1.9

Canada

1.8

1.7

2000

2002

2004

2006

2008

2010

2012

2014

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: THE COUNCIL OF CANADIAN ACADEMIES (data via oecd)

LOSING GROUND

For close to two decades Canada’s total investment in research and development (including government, business and academic sectors) has been dropping as a percentage of its economic productivity (GDP). In contrast, average investment by member states in the Organization for Economic Co-operation and Development, which includes other free-market economies, has been rising steadily.

Gross domestic expenditures on R&D (GERD), as a % of GDP

2.4%

2.3

OECD

2.2

2.1

2.0

1.9

Canada

1.8

1.7

2000

2002

2004

2006

2008

2010

2012

2014

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: THE COUNCIL OF CANADIAN ACADEMIES (data via oecd)

“There’s a failure to really capitalize on our assets,” Dr. Blouw said in an interview, adding that the trend reaches back across successive governments. “This isn’t a short-term blip.”

The report is the third in a series, produced every six years, to assess the state of Canadian R&D, but it is broader than its predecessors, taking stock of what is known as the entire innovation value chain, from basic research to wealth creation. Yet the conclusions are familiar, because they suggest that one of Canada’s most pressing problems is a long-term decline in business-sector investment in R&D.

For example, the report says that between 2008 and 2013, the country experienced a 20-per-cent decline in the number of people employed in research and development by Canadian businesses. The contraction of the R&D work force is symptomatic of a larger shift that drags Canada down relative to other developed countries and rising economies, including China and India, where research and development is expanding rapidly.

Government spending on science and technology can’t compensate for the business investment that Canada has lost, with the net result that the overall picture in the report is one of decline.s

Debate is continuing over which factors are most responsible for the trend.

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The resource-based nature of Canada’s economy means many industries see less need to invest in research, unlike businesses in countries that depend heavily on building and selling electronics or other technologies. Meanwhile, big multinationals tend to distribute their operations in a way that locates R&D outside Canada. And cultural factors suggest Canadian businesses and investors are more risk-averse than their counterparts elsewhere.

A key part of the picture is Ontario and Quebec, the manufacturing powerhouses of Canada, which account for almost all of the R&D decline.

Dr. Blouw noted that as developed economies shift from manufacturing to services and information, “there’s a concern that Canada is not doing that as nimbly or as rapidly as other countries.”

Craig Alexander, chief economist for the Conference Board of Canada, said the report’s outlook is significant because research and development is often what drives growth in productivity and, in turn, a rising standard of living.

The report shows there is “a real economic threat,” he said. “Canada needs to change the course its on.”

The catch is that governments have already tried many of the approaches that have been suggested to improve the situation, he said. Some, such as the investments that put Canadian scientists at the forefront of the current boom in artificial intelligence, are welcome developments, but in the long term, they may not be enough to keep up with developments overseas.

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Adam Holbrook, a policy expert at Simon Fraser University in Vancouver, said the federal government’s recently unveiled innovation superclusters initiative might prove to be a worthwhile experiment because it put the onus on businesses to drive innovation.

“The problem is that innovation is devilishly difficult to measure,” he said.

The report itself noted that in future, the exercise of trying to take stock of Canada’s R&D landscape would require better data and a more nuanced view of what kind of activity is being studied.

John Thompson, a retired executive vice-chairman of IBM Corporation and member of the report panel, said much of the innovation occurring in Canadian companies may not be captured under the traditional definition of R&D.

“You get under the covers and there’s a lot of innovation going on,” he said.

He said the report came with some positive signs, including evidence that the climate for private investment in Canadian startups is improving. However, he added, the data show that another factor affecting R&D in Canada is how many companies are bought by multinationals once they begin to take off.

“I’d like to see more Canadian companies moving on to the next stage and figuring out how to become world-beaters,” he said.

Editor’s Note: This version corrects the title for John Thompson.


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