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Advisory Council of Economic Growth, chaired by McKinsey & Co.’s Dominic Barton,will present its first three recommendations to stimulate Canada’s sluggish economy on Thursday.Paul Chiasson/The Canadian Press

A group of external experts advising Finance Minister Bill Morneau will recommend several proposals in the coming months to improve on Canada's chronically poor record of turning cutting-edge science into prosperous technology giants.

The Advisory Council of Economic Growth, chaired by Dominic Barton, global managing director of McKinsey & Co., will present its first three recommendations to the minister to stimulate Canada's sluggish economy on Thursday. As The Globe and Mail reported Wednesday, the council is calling for a 50-per-cent increase to immigration levels and to make it easier for skilled foreigners to move to Canada; to create an "infrastructure bank" that would develop and finance infrastructure projects; and to build a new department to pursue more investment here by foreign firms.

But sources close to the council say it will shift its focus to innovation policy for its next set of ideas to generate economic growth. Its recommendations are expected to include:

  • Pushing government to buy more from startups;
  • Creating an “Innovation Marketplace” modelled on Germany’s successful Fraunhofer Society, where industry and research bodies would work together to commercialize cutting-edge technology;
  • Developing a “growth fund” that would finance emerging tech firms past the startup phase; and
  • Overhauling the government’s myriad programs for subsidizing companies, including possibly changing the biggest, the $3-billion-plus Scientific Research and Experimental Development tax incentive program, which allows tech firms to claim tax credits for hiring engineers. Many tech firms love SR&ED, but critics say it is too unwieldy and offers “indirect” aid too broadly to any applicant, whereas more “direct” subsidies would target firms with a better chance of succeeding.

A source close to the council said there are far too many business subsidy programs – close to 200 – and the council is discussing drawing up a list to identify which ones should be cut or overhauled.

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The council's plans are developing in concert with efforts by government to develop an innovation agenda. Innovation Minister Navdeep Bains said in an interview this month the government is looking "at our programs and what they're doing and how to get the best return on investment … So there is a fair amount of retooling that is taking place." He indicated the government "maybe need[s] to rethink the mix and balance between direct and indirect" aid.

Mr. Bains also said the government is looking to improve on its poor record of procuring services from startups. Many small tech firms say they have difficulty selling to their home government, making it hard to persuade foreign customers to sign on. In other countries, notably the United State, startups have a far easier time selling to government.

The innovation file is particularly challenging to government officials because Canada's rate of research and development spending has declined compared with other states in the Organization for Economic Co-operation and Development. And while Canada produces about as many new companies per capita as the United States, few grow into large firms.

"The challenge with innovation is that we recognize it's not simply a single silver bullet, it really is a suite of ideas and policies and programs," Mr. Bains said.

Nonetheless, Canada has turned into a hotbed of promising early stage tech firms in recent years, many of which have drawn venture capital financing from Silicon Valley and collectively created tens of thousands of jobs.

The Liberal government has made innovation a key priority, committing billions of dollars to universities, high-tech clusters and clean technology initiatives in its first budget. Prime Minister Justin Trudeau has gone to great lengths to talk up innovation, appearing at high-profile photo-ops with global tech firms and highlighting the "resourcefulness" of Canadians at the World Economic Forum in Davos – in contrast to the country's reputation as a natural resources powerhouse.

With a report from Bill Curry

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