Budget does little to enhance Canadian innovation, entrepreneurial culture lacking

12th Annual RE$EARCH MONEY Conference

Federal innovation policy is increasingly emphasizing a shift towards connecting science and the marketplace to better compete in the global economy, an approach that may result in a new S&T strategy in the near future. That was one of the key messages delivered by Gary Goodyear, minister of state for science and technology, during a keynote address at the 12th annual RE$EARCH MONEY Conference in Ottawa earlier this month.

The Conference brought together a powerful slate of speakers from the business, policy and academic communities to discuss issues surrounding Canada's innovation ecosystem. Building on the conference theme — Checking the Pulse of Canada's Innovation Policies — they offered insight and advice on how to incent the business community to work more effectively with the generators of new knowledge and move discoveries into the highly competitive global marketplace.

Goodyear revealed he was in discussions with the provinces on a new strategic focus, speaking at length on the "new approach" the government was taking and how it was reflected in the S&T investments made in the past two Budgets.

"We are taking a new approach to innovation that focuses on active business-led initiatives … What this new approach translates to in hard numbers is $466 million for new measures to support innovation," said Goodyear. "Obviously it makes sense to maintain a strategy that is not just current and appropriate but looks forward and captures that, so that we can continue to move forward and people know what the federal government feels is necessary."

While the investment assertions made by Goodyear were not unanimously agreed upon, many concurred that the direction the government is taking on innovation has potential. Jason Myers, president and CEO of Canadian Manufacturers and Exporters, stated that he liked the Budget's innovation measures "in general" and singled out its support for small- and medium-sized enterprises, the new voucher program and substantial new funding for Fed Dev (R$, April 3/13).

"We need to get away from technology push as it creates a disconnect between excellent research and its take-up," said Myers. "The customer is key and we need a strategy with more support for companies, creating demand. Fund what business needs."

Myers' support for the Budget did not extend to the latest changes to the scientific research and experimental development (SR&ED) tax credit program. CME has been one of the most outspoken critics of changes to SR&ED in the 2012 Budget (R$, November 9/12) and Myers described recent discussions with the government on the changes as "discouraging".

"We need to place the customer first. They define the need," he said.

The 2013 Budget's innovation provisions were front and centre in a presentation by David Watters, head of Global Advantage Consulting and a former ADM at the Finance department.

Watters provided a thorough overview of the Budget's innovation measures, counting 12 initiatives aimed at bridging the various gaps between discovery and the marketplace. He concluded that $454 million over two years simply isn't enough to have a substantive impact, given that R&D spending by all sources over the same time period is nearly $60 billion.

"New money for research and innovation is very small … It won't do much What can you get for $454 million?," said Watters, suggesting it could buy three new F35 fighter jets, a couple of ball players or a couple of rare paintings. He also noted that the government's R&D outlays for FY12-13 were about $7 billion, which is down from the previous year.

Watters described the massive new Canada Jobs Grant program as "very innovative" and noted that the Conservative government was taking a "highly interventionist", sectoral approach to the economy.

industry weighs in

For key sectors in Canadian industry, reaction to the Budget's innovation initiatives was largely muted. A business panel including representatives from large, medium and small companies concluded that the Budget measures will have marginal impact on their businesses and urged the government to give innovation a higher profile in its policy making.

"The government shows no urgency to boost innovation," said Jim Standish, CFO of Macadamian, a Gatineau QC- based software firm. "Government people need to go out and talk to companies to understand their needs and challenges."

Standish noted that SR&ED was "further eroded" in the latest budget and said that design work should be made eligible.

William Harney, executive director of R&D for Magna Exteriors and Interiors, concurred that the government has much to learn about establishing optimum conditions for innovation and commerce to flourish. He also said the government appears to have no urgency when it comes to the innovation file, adding that his firm's employees are focused squarely on productivity.

"Somebody tell (prime minister Stephen) Harper that product is the root word of productivity," said Harney. "We need to focus on developing product. South Korea picked winners and supports them with the view to exports."

entrepreneurial culture lacking

The financing of innovation remains a serious concern in Canada, according to a panel of US and Canadian venture capitalists who lambasted the Canadian VC industry and called for concrete steps to develop an entrepreneurial culture.

Charles Lax, managing partner of Boston-based GrandBanks Capital, said his firm invests 25% of its early-stage capital in Canadian firms since most of his colleagues have no idea where Canada is.

"It's like shooting fish in a barrel ... Canadian VC is really good at funding bad companies whereas we have a 90% hit rate with our portfolio," said Lax. "We're looking for larger, more successful companies that can scale ... We need to locate companies close to customers and they're not in Canada."

Lanis Anthony, chief entrepreneurial officer of the Regina-based CCINC Group of Companies, lamented the "spoiled child syndrome of Canadian VC" and says governments should stop "band-aiding" companies.

"They keep throwing good money after bad, said Anthony. "Canadians are not listening to advice so there's no entrepreneurial activity."

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