Ben Dachis is a senior policy analyst at the C.D. Howe Institute.
We are surrounded by innovations made by Canadians. We invented canola oil, alkaline batteries and snowmobiles. Such innovations are at the heart of our economy. But where in Canada are the innovators of today? New data show that we need to rethink old stories of which parts of the Canadian economy are the most innovative. Inventors in Alberta and in the utilities and construction sector – areas that some see as producing little domestic value added – are outperforming researchers in many other parts of the economy in applying their work to the Canadian market.
Patents are a good measure of innovation at work. A patent provides its owner with the legal right to limit others' use or sale of an invention in Canada. In exchange, inventors must disclose the details of their inventions to the public. Patents are a direct outcome of research and development.
Other measures are problematic. Counts of research and development spending or personnel are measures of inputs, not outputs. Patents also have some limitations as a measure of innovation. Many patents are worthless. Some block later innovations.
To get a patent, applicants must file with a national patent office. The C.D. Howe Institute has constructed a database of all patent applications to the Canadian Intellectual Property Office from 1980 to 2013. That's more than one million patents that cover the Canadian rights of inventions. We are able to measure the inventions from Canada and abroad that inventors intend to use in Canada. Looking at how Canadians apply their innovation at home is a new way of thinking about domestic value added beyond building refineries or propping up manufacturing.
While Ontarians and Albertans are the most active inventors per capita, those in Atlantic Provinces trail the rest of Canada. Alberta outperforms both the national average and the rest of Western Canada, making it a hub for inventors.
We also measure which sectors have the most productive Canadian inventors compared to the country as a whole. Looking at the country as a whole, the construction and utilities sectors over-perform. These industries represent significant areas of Canadian-made innovation applied in the Canadian market. In contrast, the patent-reliant pharmaceutical and medical device manufacturing sectors have a lower share of innovating for the Canadian market.
Countrywide, what are the sectors seeing the most growth of Canadian-led innovation? Computer and electronics manufacturing has seen a large and growing share of Canadian-led innovation over the past 20 years. Mining, quarrying and oil and gas extraction have seen a steady increase since 1990 in innovation.
These differences point to many broad policy lessons. Canadian governments have created one of the world's most generous tax credits for research and development. Despite this generous support, all provinces have seen a decline in patent applications per capita in the last decade.
With Canadian governments spending so much on supporting the inputs of research and development, and seeing so little on the outputs of innovation, it may be time to re-examine tax credit supports for research and development. One approach is for the government to lower taxes on income from intellectual property, such as patents, to encourage commercialization. Another approach the Alberta government took was to found, then spin off into a for-profit corporation, Productivity Alberta, which offers productivity advice to energy, construction and manufacturing firms.
Governments and businesses will only know how to fix Canada's innovation and commercialization problem if they can measure innovative output. Knowing where Canadian innovation and commercialization comes from is a good place to start.
Robbie Brydon, Nicholas Chesterley and Aaron Jacobs contributed to this article.