We’re a long way from achieving a high-value competitive economy

TORONTO—Industry Canada is seeking the views of Canadians for a new Science, Technology and Innovation Strategy, an update from the strategy unveiled by the Harper government in 2007. It’s clearly evident that there is an urgent need for a review. Canada is still struggling to build its capacity for innovation and productivity growth. Despite some federal program improvements, we are still a long way from achieving a high-value competitive economy for the 21st century—and the jobs that such an economy would generate. But the consultation process that Industry Canada has launched appears unlikely to deliver the kind of bold new thinking we need for a more innovative country. For one thing, the consultation period is extraordinarily short. Announced on Jan. 8, Canadians have only until Feb. 7 to submit ideas. This is enough time for lobby groups and associations to submit wish lists for more money to keep on doing what we are already doing. But it is not long enough for Canadians to prepare serious proposals for major changes in policy. Just as important, it does not appear Industry Canada is seeking major new ideas. It has issued a pamphlet—Seizing Canada’s Moment—that is long on boastful statements about existing federal policies and extraordinarily short on any kind of serious analysis on the challenges we face. It sets out a set of questions—asking, for example, what new steps can be taken to improve business investment in R&D and innovation, how to improve commercialization of new knowledge coming from universities, colleges and government labs, how to attract top talent from other countries, and how to improve support for research excellence. By themselves, these are important questions. But the answers will not add up to an effective new innovation strategy. As the OECD has pointed out in a recent publication, Supporting Investment in Knowledge, Capital, Growth and Innovation, “innovation is a key to business success, but where innovation comes from is changing.” Today, it says, “firms are looking beyond research and development (R&D) to drive innovation. They invest in a wide range of intangible assets, such as data, software, patents, designs, new organizational processes and firm-specific skills.” It is this knowledge capital that makes firms innovative and competitive. R&D is, to be sure, important because it is the source of new ideas. But in its 2013 Science, Technology and Industry Scorecard, the OECD notes that Canada is one of the few countries where R&D spending declined between 2001 and 2011. Canada ranks 21st among OECD countries in R&D spending, as a share of GDP. But analysis by Statistics Canada suggests R&D accounts for just 25 per cent of spending on innovation. In a 2012 paper, Intangible Capital and Productivity Growth in Canada, John Baldwin and his colleagues at Statistics Canada found that investment in intangible or knowledge capital by the business sector in 2008 was 66 per cent of the level of investment in tangible capital, such as machinery and equipment, compared to just 23 per cent in 1976. Business spending on intangible capital reached $150.7-billion in 2008, compared to $96.8-billion in 2000. Industry Canada also appears to be caught in another mind-trap as well, focusing on commercialization of new knowledge from universities as the critical challenge. But most ideas for innovation originate in businesses, not academic institutions. The BlackBerry, Bombardier’s Q400 aircraft, or ice wine originated in companies, not universities; universities provided graduates to help develop these products and research that helped advance these products, but the ideas for these products originated in companies where contact with customers is often the key driver of innovation. The other mind-trap problem is that innovation too often is seen as a commercialization challenge, which is all about starting new companies. In reality, this is the easy part. Scaling up a company for commercial success is a much more difficult and time-consuming process—something that is too often ignored in innovation debates. This is a key, but neglected challenge in Canada. Two studies from Statistics Canada earlier this month showed that the productivity gap in the business sector between Canada and the U.S. can be explained, in large part, by the greater proportion of smaller firms, those with fewer than 500 employees, in Canada than in the U.S. and the fact that smaller firms in Canada compared to larger firms are much less productive in Canada than in the U.S. In Canada, productivity in small firms was about half the productivity level (output per hour worked) of large firms, but in the U.S. small firms were about 70 per cent as productive as large firms. What this means is, first, that we need to do a better job of growing more smaller firms into bigger firms so that they can benefit from greater economies of scale and develop greater capacity for innovation and, second, we need to look at better ways of raising the productivity of smaller firms. Or, as Statistics Canada researchers put it, “together, decreasing the relative importance of small firms in the economy and increasing their relative productivity compared with large firms accounts for most of the gap in productivity levels between Canada and the United States.” The federal innovation strategy does not address either of these issues nor are they raised in the discussion pamphlet issued by Industry Canada in seeking the views and recommendation of Canadians in the current review. Reviewing the federal innovation strategy is important and timely. But Industry Canada seems more interested in gathering some quick ideas rather than undertaking the kind of serious analytical review that we need. David Crane can be reached at crane@interlog.com. news@hilltimes.com The Hill Times

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