"Alternative" budget floats new investment bank, more money for research

By Debbie Lawes

When Finance minister Bill Morneau stands tomorrow to deliver his first Budget, science and technology watchers will be anxious to see how the Liberal party follows through on commitments to make research and innovation a central focus of its economic agenda. For one progressive think-thank, however, it's unlikely the Budget will contain two major stimulus mechanisms flagged in its Alternative Federal Budget (AFB) — a new $2-billion Canadian Development Bank and $500 million annually for industry sector development.

Released March 10, the 158-page document is the Canadian Centre for Policy Alternatives' 21st AFB. Written by nearly 100 contributors, it contends the government could let the deficit rise to $37.9 billion in 2016-17 — $8.7 billion higher than a projected Liberal deficit — without compromising Canada's debt-to-GDP ratio.

"We shouldn't let the idea of federal deficits, even relatively large ones, scare us off making much needed investments in Canada," CCPA's senior economist David Macdonald said in a release.

The AFB offers a grab bag of new funding for research, including a 10% increase to the annual base budgets of the three granting councils ($231 million), with a larger share going to the Social Sciences and Humanities Research Council. SSHRC has seen its federal funding drop by 9.5% between 2009 and 2015 — more than the other two councils.

The AFB also takes issue with the previous Conservative government's decision to link new council funding to private sector collaborations, saying "market-driven research programs are leading to an unhealthy private-sector dependency on universities for their research and development. This corporate subsidy contributes directly to Canada lagging behind other OECD countries in private sector investment in in-house research and development capacity."

While business R&D has been rising among international peers and the OECD, it has been declining in Canada for nearly 15 years. Innovation minister Navdeep Bains recently acknowledged the challenge in a speech to the Toronto Board of Trade, saying industrial R&D is going "in the wrong direction" and business is sitting on piles of unused cash on its balance sheets (see page 4). The AFB estimates industry is sitting on over $600 billion in "idle cash and liquid assets".

The AFB proposes two main initiatives designed to stimulate industry investment, while growing more global companies, increasing exports, creating higher-income jobs and enhancing environmental sustainability. One is a $500-million annual investment in a national network of sector development councils that "will identify oppor- tunities to stimulate investment and employment in Canada, develop and mobilize Canadian technology, utilize technologies developed in educational institutions for broader commercial applications, invest in sustainable products and practices, and expand value added exports," the AFB states.

The network would be supported with a $50-million annual operating budget, with an additional $450 million to support the development and implementation of new strategies for sectors such as automotive, aerospace, green energy manufacturing, forestry and digital exports. The councils would be comprised of representatives from social, economic and business sectors and would "actively manage growth in these industries" including training and skills development, says Dr Jordon Brennan, one of the report's authors and an economist with Unifor, Canada's largest private sector union.

"These sector development councils would be an approach to economic development that gives a broader voice to groups that are really outside the entrepreneurial or business class like academic institutions, labour unions and various trade associations," says Brennan. "It's a more democratic approach to economic governance that is in effect in other jurisdictions," such as South Korea and Germany.

One of the biggest line items in the AFB is a one-time, $2-billion investment to capitalize a new publicly owned Canadian Development Bank focused on scaling up mid-sized companies into large, export-focused companies. The bank would provide loans or take equity positions in companies based indicators such as job creation, domestic production and environmental sustainability. The idea, first floated in the 2003 AFB, has so far received no traction with government, but Brennan suggests political attitudes may be shifting as a result of the 2008 recession and a wave of more progressive governments.

Brennan says this mechanism could be used to support companies and sectors lobbying for government investment, such as Bombardier or the auto sector. "It's not foolish to have a professionally accredited economic vehicle to handle these types of things instead of them being just lobbed at Cabinet which is shuffled all the time and juggling different political priorities," he says.

Other Budget items

Another priority for the AFB is skills development and training. The budget would increase the number of Canada Graduate Scholarships from 2500 to 3000 ($17 million), provide funding to not-for-profit organizations for 20,000 six-month paid internships ($300 million) and support Ryerson Univ's Magnet job-matching consortium ($30 million).

The AFB also takes aim at the erosion of federal S&T capacity. Whereas the Liberals have pledged to invest $100 million over four years in agricultural research, the AFB says at least $270 million is needed over the next three years to restore lost research capacity and programs, particularly at Agriculture and Agri-food Canada. As well, the AFB would return the National Research Council to a focus on public interest research, including curiosity-based research, rather than industry-facing technology development.

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